Controlled group + 3 plans = coverage problem

[AlbanyConsultant]

We took over the plans of a non-profit controlled group - three distinct entities, each with their own plan. Their approximate 2013 demographics are:

Corp - 519 NHCEs, 1 HCE, profit sharing only plan (they also have a non-ERISA 403(b) plan for this group)

CA - 20 NHCE, 0 HCE, 401(k) plan with match

HA - 50 NHCE, 0 HCE, 401(k) plan with match

The CA and HA plans are identical

I believe coverage is OK for 2013 as the only benefitting HCE is in the profit sharing, and that test is (1/1) / (519/589) > 70%.

However, one employee of CA had comp > $115K in 2013, so she will be an HCE for 2014. I think that will blow this arrangement up, as the deferral and match tests for 2014 will be (1/2) / (69/588) = 23.5%. Obviously, this would be Bad News. So...

1. Please tell me that my math and/or logic is completely off and everything works out fine.

2. Can I use a QSLOB election to group CA & HA and get around this?

3. If not, is there another way to pass coverage? I haven't looked at average benefits, but I suspect that having 500+ participants getting no benefit will sink that test, too.

4. I'm going to assume that the plan sponsor would like to avoid bringing in 206 - 69 = 137 employees of the Corp into one of the 401(k) plans and giving them QNEC/QMAC allocations to pass coverage. Is there another option?

Thanks.

[ETA Consulting LLC]

I'll amend the plans for CA and HA to exclude HCEs. You'd have to find another way, potentially a non-qualified arrangement, to benefit them. That would be a quick fix.

Good Luck!

[BG5150]

Do they all have > 1 YOS? Any way to disaggregate them?

[Tom Poje]

you didn't indicate what the avg ben % test was. if it is above 70% then the 23.5% is greater than the safe harbor % of 20.75% so plan would pass avg ben test.

[austin3515]

fwiw, I don't think you can use the 403b deferrals in the Avg Ben Test.