Top Paid Determination

[justatester]

Company A acquired a company B in 2016. They are now part of a controlled group. Plans will not merge in 2016 or 2017.

Company/Plan A uses top paid to determine HCEs and it applies.

Company/Plan B does not.

I believe all members of the "controlled group" must have the same election. So, what do you do if they do not? If possible, should Plan B be amended by 12/31/16 to "elect" top paid?

If both plans elected top paid, for 2016 a "reasonable approach" would be to calculated the top 20% separately. For 2017, they should be done in aggregate.

For 2016, how should HCEs be determined (if plan b is not amended)? Can Company/Plan A still continue to use top paid for 2016?

Thanks!

[Tom Poje]

well, for coverage purposes there is the transition rule under IRC 410(b)(6) that basically says you can ignore aggregating things for 2016 and 2017 (assuming there is nothing really strange going on with the acquisition)

I think one of the reasons for that rule is the situation you describe, to give you some time to modify things.

[justatester]

I would agree for Coverage....but does the transition rule apply to HCE determination?

[Tom Poje]

well, I would think it has to apply.

so you look at each plan separately under its own terms, or at least that is how I think it operates.

[AndyH]

Can I chime in on this old thread?

What if it is discovered after the fact (a later year) that members of a controlled group have been doing their own thing (some using TPG based on their own employee counts and some not using TPG).   This must happen sometimes.  Is their a fix?  Does the failure of one plan to adopt the TPG election invalidate the election for other plans?