controlled group with different eligibility

[hileman]

if you have a controlled group.  plan a has no service requirements immediate eligibility deferral and safe harbor match.  Group b has 1 year of service and monthly entry.

The plans must be aggregated to pass coverage and we have to test on statutory exclusions

The plans are not top heavy single or aggregated

Is the plan really satisfying safe harbor?  it seems like there would be a problem if one group is immediately eligible to defer and receive shmc when the other group has to wait 1 year and dual entry

Are there any additional testing requirements that are needed when you have a controlled group and vastly different eligibility requirements?

 

 

[Tom Poje]

well

section 1.401(k)-1(b)(4)(iii)(B)

...thus, in applying the permissive aggregation rules of 1.410(b)-7(d), an employer may not aggregate plans that apply inconsistent testing methods.

.......

now if you combine things you have some people who are deferring but get no safe harbor and that would appear to be inconsistent, so I would agree with your conclusion. but then if they can't pass as stand alone, what do you do. I haven't seen guidance. the IRS is not out to disqualify plans. if it was 3% SHNEC then I'd say just give them the 3%. but if it's a SHMAC it is a little more complicated because people couldn't defer in the first place.

is this a new controlled group and can you use the transition rules to pass coverage. if not new, then of course, why wasn't the issue resolved previously....but of course, I'm not really asking that but just muttering out loud. I do that from time to time.

[hileman]

This is a new controlled group (ownership changed in 2016)

I can't seem to find any guidance on what you do with controlled groups that have different eligibility requirements but must be aggregated because they couldn't each pass coverage on their own excluding the other group.

must your eligibility be the same to aggregate? 

if they are not the same, do you test coverage aggregated using the requirements of the plan that has lesser service?  ie, aggregate as if both groups are immediate eligibility even though co b really has 1 year of service?

any help or direction is greatly appreciated

[CuseFan]

This is why there are the M&A coverage and nondiscrimination testing transition rules. You can treat as separate entities for the rest of 2016 and all of 2017 provided you don't amend coverage or benefits. That gives you time to analyze the aforementioned mess and make prospective (2018) changes to the plans to ensure future compliance. 

[Belgarath]

Isn't the 401(b)(6)(C) dispensation for coverage only, and not for nondiscrimination? Although a design-based safe harbor under 401(a)(4) can often be deemed to pass, but these days, such plans are becoming fewer and fewer, at least in our small plan market.

[CuseFan]

Well, if they are separate for coverage ("dispensation") then they are separate for nondiscrimination.

[Tom Poje]

as Belgarath points out, it is under coverage that speaks of the transition rule, there is no corresponding rule for nondiscrim. but the only people on any ADP test are those who can actually defer, so if you look at each plan separately (since you don't have a coverage issue), each is a safe harbor and my conclusion is you are ok.