401(k) with both participant directed accounts and a trustee directed brokerage account

[lradimer]

Good afternoon everyone!  I'm hoping one of the bright minds on here can shine some light on the following topic and proposed solution:

Company A has a 401k plan with it's assets in participant directed accounts with a recordkeeper. Company B  became part of an affiliated service group with Company A however previously participated in a MEP.  They ceased participation in the MEP and want to move their assets in that plan to Merrill Lynch.  To do this there are a few options:

1. Sponsor their own plan with the assets in a trustee directed brokerage account (pooled account with both HCE and non-HCE assets) with Merrill Lynch and transfer the assets from the MEP into it. Company A is much larger than Company B and since BRF testing would be needed due to different investment options, by using a trustee directed brokerage account, BRF testing on the benefit of having participant directed accounts would pass.

2. Sponsor their own plan and transfer the assets from the MEP into it, terminate it and rollover their assets into IRAs at Merrill Lynch and then wait a year to participate in Company A's plan.

3. Transfer the MEP assets into a trustee directed brokerage account with Merrill Lynch that is considered part of Company A's plan.

Question 1: Is option 3 permissible?  I have never seen a plan that has both participant directed accounts and a trustee directed brokerage account.  Company B would be the only one with assets in the brokerage account but both Company A and B will have participant directed accounts under Company A's plan

Question 2: Would the BRF testing be done again only on the right to have participant directed accounts or is there a concern that only Company B has the right to have assets in a trustee directed brokerage account?

[K2]

I've had plans that are a mix of balance forward and daily.  Usually it's the profit sharing component that's trustee directed balance forward, with the other sources being at a recordkeeper.  IN your case, you want company B to have their assets as balance forward.  I don't know of anything that would prohibit that.

That said, would you have to do BRF testing on that?  I would say yes, if you are restricting access to one investment option only to a select group of people, then it's a BRF to test.