ESOP and 2 401k plans

[cpc0506]

Client currently sponsors an ESOP and a tested 401k Plan.  The ESOP owns 100% of the company stock.  Both plans are audited.

Client is interested in breaking their current 401k plan into 2 separate plans to avoid the cost of audit.  The two plans would consist of one safe harbor plan covering salaried employees and one tested plan covering hourly employees.  All HCEs would be in the safe harbor plan as would 32.97% of the NHCEs.  The remaining 67.03% of the NHCEs would be in the tested plan.  Can this be done when the third plan sponsored by the client is an ESOP?  We have not encountered this situation before.  Can anyone provide guidance or reasons this is not feasible?

[CuseFan]

You can do it if you satisfy coverage, which for the SH-K would mean passing the average benefits test. When calculating average benefits percentages you include all plan and all benefits, including the ESOP.  

[ESOP Guy]

Also, if people are getting a benefit in the ESOP and the plans are TH the SH plan's protection is blown but that was true before the split I guess.  But a any benefit outside of the SH plan and all the plans are TH means you have to provide TH minimums.   That is my understanding.  I don't have very many TH ESOPs as I deal with larger plans most of the time.