Aggregating for Coverage, but Diff Testing Methods

[austin3515]

Two plans, one with all the HCE's and one with all the NHCE's. The HCE Plan uses prior year testing and the NHCE Plan uses CY testing. I need to aggregate to pass coverage. Is EPCRS my only option?

[obviously, no one knew about the coordination rules - the operation of the entities was quite disparate].

[Tom Poje]

well you can't aggregate plans with different testing methods, so since you have HCEs in one and NHCEs in another you fail coverage. That would disqualify the plans, and the IRS isn't really out to have that happen, so EPCRS is available for such situations.
so the question is, what is available?
Failing coverage is a demographic failure. EPCRS indicates

SECTION 4. PROGRAM ELIGIBILITY
.01 EPCRS Programs. (1) SCP. SCP is available only for Operational Failures. Qualified Plans and 403(b) Plans are eligible for SCP with respect to significant and insignificant Operational Failures. SEPs and SIMPLE IRA Plans are eligible for SCP only with respect to insignificant Operational Failures.
(2) VCP. Qualified Plans, 403(b) Plans, SEPs, and SIMPLE IRA Plans are eligible for VCP. VCP provides general procedures for correction of all Qualification Failures: Operational, Plan Document, Demographic, and Employer Eligibility. VCP also provides general procedures for the correction of participant loans that did not comply with the requirements of § 72(p)(2).

.05 Correction by plan amendment. (1) Availability of correction by plan amendment in VCP and Audit CAP. A Plan Sponsor may use VCP and Audit CAP for a Qualified Plan or 403(b) Plan to correct Plan Document, Demographic, and Operational Failures by a plan amendment,

Section 5 01.2

(c ) Demographic Failure. The term "Demographic Failure" means a failure to satisfy the requirements of § 401(a)(4), 401(a)(26), or 410(b) that is not an Operational Failure or an Employer Eligibility Failure. The correction of a Demographic Failure generally requires a corrective amendment to the plan adding more benefits or increasing existing benefits (see § 1.401(a)(4)-11(g)).

..............

so I read that to say, yes, you correct, but use VCP.

[John Feldt ERPA CPC QPA]

Technically only the plan that covers just the HCEs fails. The submission would be regarding that plan's approach to the fix.

[Mike Preston]

Interesting as to what the fix would be, though. We know an 11(g) amendment can increase coverage, but what would be the practical effect of doing so? Let's say that you need to add 3 NHCE's to the "currently HCE only" plan to pass coverage. How much of a "benefit" do you sprinkle on the NHCE's? Wouldn't the normal fix be the average of the NHCE ADP? But the NHCE ADP doesn't exist because there aren't any NHCE's. Would 3% work?