General Test for One Plan but not the other?

[Dougsbpc]

Suppose you have a small employer with 7 employees. All are full time and have been with the company for years.

They sponsor a defined benefit plan and a profit sharing plan.

The 100% owner and two other employees are covered under the DB. three other employees are covered under the profit sharing plan. The owners son is excluded from both plans. Therefore, no employee participates in both plans.

The profit sharing plan has no HCEs benefiting. Therefore, it passes 401(b) and all of its participants receive the same profit sharing allocation so no other testing issues.

The DB passes 410(b) but NHCEs receive slightly less than the business owner so they run 401(a)4 and it passes. In completing the 401(a)4 test, I believe the employees who are excluded need to be included in the test with $0's correct? And if so, don't those being excluded need to receive a minimum gateway?

Thanks.

[Tom Poje]

my understanding of the rules in this case:

you are not aggregating the plans for testing, you are testing the separately.

plans pass without the need for the avg ben pct test

so someone not in the plan being tested is treated as includable and not benefiting.

if you receive nothing in the plan, then there is no gateway

I think that is different than having a single plan and splitting it into component plans, in which case the regs are clear you can't do that to avoid the gateway.

but then I could always be wrong.

[CuseFan]

nope, you are correct

[Mike Preston]

It is unclear whether Tom is citing things that are required in all cases or whether things are cited because they happen to apply in this case.....so, with respect to: "plans pass without the need for the avg ben pct test"

How does the analysis change if the quoted text becomes:

"db plan passes 410(b) only because the avg ben pct test is satisfied" [increase total employees to 8 by adding 1 NHCE not participating in DB plan]

?

 

[Dougsbpc]

In this case the plans are being tested separately. Also, no employee participates in both plans. Must they be aggregated for the top heavy test? If top heavy, must a top heavy minimum be provided to participants of both plans?

What if we were talking about two 401(k) plans? Must both plans be aggregated for the ADP test or could the tests be run separately for each plan?

Thanks. 

[Mike Preston]

15 hours ago, Dougsbpc said:

In this case the plans are being tested separately. Also, no employee participates in both plans. Must they be aggregated for the top heavy test? If top heavy, must a top heavy minimum be provided to participants of both plans?

What if we were talking about two 401(k) plans? Must both plans be aggregated for the ADP test or could the tests be run separately for each plan?

Thanks. 

They must be aggregated for TH purposes only if (A) or (B) and, in this case, neither is applicable.*

Since they don't need to be aggregated, and the plan with just NHCE's can't be TH, TH minimum for those NHCE's doesn't apply.

If they were 401(k) plans and satisfied 410(b) separately, then there is no required aggregation for ADP purposes.

* A=There is at least one Key employee participating in each plan.

B=The plan with the Key employee depends upon the other plan to satisfy 401(a)(4) (where for purposes of this rule, you do not consider the ABPT, if needed, as a test which establishes the plan's dependence upon the other plan).

[Dougsbpc]

Thanks Mike. Great explanation!