Coverage Testing on Controlled Group

[Hokielady]

I have two Employers part of a controlled group; both have 06/30 year end

Plan A- 401k and Profit Sharing Money source

Plan B-401k and discretionary Matching

401k Coverage

Plan A can pass 401k coverage on its own (176%)

Plan B fails 401k coverage on its own (27.44%)

therefore it must be permissively aggregated with Plan A in order to pass- and it does

401m Coverage

Fails when calculated separately by each plan and on a combined basis since Plan A has no Match.

Profit Sharing Coverage

Plan A can pass on its own

Plan B fails on its own since there is no Profit Sharing

Combined testing passes.

So does this mean Plan A has to have a match and fund it?

[Mike Preston]

Show numbers of NHCE's and HCE's in each. Do the combined plans pass the ABT? If so, what is the safe-harbor percentage and the unsafe-harbor percentage?

Right now, I'm not accepting your premise that the 401(m) coverage fails.

BTW, you don't test non-existent benefits, so 401(m) doesn't involve Plan A and Plan B isn't involved in testing PS.

[Hokielady]

Plan A

Coverage Group-total 670

NHCE -647

HCE -23

No match in this plan; but Profit Sharing and 401k- eligibility is 12 months on both sources

Benefiting Group for PS and 401k

NHCE-587

HCE-23

Plan B

Coverage Group-total 149

NHCE-119

HCE-30

No profit Sharing but Match

all ees in this plan are eligible for match and deferral; immediate SD entry and 1 year wait on Match

I didn't run ABT yet since I am having trouble getting software to recognize both groups.

BTW-I also thought you didn't combine the non similar money types, but software provider told me I had to aggregate both in testing- they said Plan B ees would be treated as non benefitting.

[Tom Poje]

are you saying 60 NHCEs in plan A are not eligible yet, or are, for some reason, excluded from the plan entirely? I will assume they are not eligible rather than excluded entirely. otherwise the denominator for the NHCEs has to increase by 60 and all bets are off.

taking a look at 401(a)(4) testing (nonelective/profit sharing)

and using plan A 587/23 and plan B 119/30

you have 706 nhce total and 53 hce total

B offers no profit sharing so whether you aggregate or not all of B are treated as not benefiting

so you have NHCE 587 / 706 = 83.14%

and HCE % 23 / 53 = 43.40%

83.14 / 43.40 - 191.57% so that easily passes.

for 401m you have the reverse

NHCE benefitting 119 / 706 = 16.86%

HCE 30 /53 = 56.6%

29.78% so that fails ratio %

you have 706 NHCE and 53 HCE

or 706 / 759 = 93% which for NHCE concentration % translates into 25.25% for 'safe harbor'

since the ratio % 29.78 > 25.5% you at least pass that portion.

If you can pass avg ben pct test then you pass. since the avg ben pct test relies on any and all contributions, providing additional profit sharing could be done to pass testing.

apologies if I have typos or miscalculations.

[Hokielady]

The Profit Sharing in Plan has a last day rule to receive a contribution, the 60 were eligible but terminated during the year and worked more than 501 hours; so I believe they will be counted.

Profit Sharing- if test plans separately

Plan A-

NHCE 587/766=76.63%

HCE- 23/53= 43.39%

Ratio percentage= 176.58%

Plan B-

NHCE 119/766=15.53%

HCE 30/53=56.60%

Ratio percentage= 27.45% fail

766(NHCE)/819(Total ees)= 93.53% and Safe Harbor % is 25.25

so if I can pass the second part of AVB I am good.

Combined Testing result is the same as Plan A

The match has the same eligibility requirement- 12 months so testing should be like the PS above.

[Mike Preston]

I find it hard to believe that the ABPT will be less than 70%. If it is, as I suspect, 70% or higher, then following Tom's excellent example each of the plans should pass 410b.

Hope B is a new plan, because otherwise you have a nearly 1,000 participant population where this is first being analyzed? :shakes head:

[Hokielady]

Company B was recently purchased and while the transition period gives them passage no matter what until the plan year that begins 07/01/2016 the client wants to get out ahead of this to determine is there will be a problem in the future. I know it's such a novel concept- the client wants to get ahead of a potential problem!

Another question- if we have to aggregate plans then the ACP test will be computed with all eligible employees of Plan A and B- I am concerned that may result in a huge failure- ADP is ok since plan A is very large. What do you think?

Also- I am wondering if the SLOB rules may help- since Company A is mainly manufacturing and Company B is software tech company

[Mike Preston]

:unshakes head left and right: and :shakes head in agreement up and down:

Good on them!

*IF* you pass the ABT (which I am betting you will) then Plan A and Plan B stand on their own for 410(b) coverage and there is no aggregation. None. Zip. Nada. Zilch.

But even if there were required aggregation for 410(b) testing you test each plan type separately. So, you might do a test for PS and a separate test for deferrals and yet a third for match.

And the rules of aggregation are applied separately to each. So, you might aggregate A and B for ADP but keep them separate for PS.

The goal is to have at least one configuration which satisfies the tests.

[Mike Preston]

Oh, one other thing. It has been a while since I looked at the QSLOB rules but as a minimum threshold I think you have to file with the IRS. I don't think you can just say: we satisfy the rules therefore we are going to test separately as authorized by 414® and regulations. Has that changed?

[Hokielady]

Looks to me like a form 5310-A would need to be filed prior to the testing year.

I am working with our pension software folks to get the files coded correctly so I can check ABT