Permissive top heavy aggregation (union ees?)

[Dawn Hafner]

An employer has two plans. One for union ees, and one for nonunion ees. Key employees only participate in the nonunion plan. Can these two plans be aggregated however for top heavy calculations?

Treas. Reg. 1.416-1, T-7

An employer may elect to treat a plan not required to be aggreagated as part of the aggregation group in order to remove the top heavy classification, but only if the aggreagated group continues to meet coverage and nondiscrimination.

Here since all union employees would be considered excludable employees for coverage and nondiscrimination, aggregating the two together will still pass coverage and nondiscrimination if the nonunion plan passes coverage and nondiscrimiantion on its own.

So, it appears to be permissible to aggreate for top heavy without any other plan issues. Comments?

[Kirk Maldonado]

Dawn:

Aren't union plans mandatorily disaggregated? If that is right (which I'm not sure of), wouldn't that preclude them from being voluntarily aggregated?

[Guest]

look at T-3

plan may be included in permissive aggregation group

[MWeddell]

I don't do a lot of top-heavy testing, so don't take my word for it, but I'm inclined to disagree with Tom Poje's posting.

Treas. Reg. 1.416-1 was written in 1984, with only few changes since then. T-3 says that the top-heavy group may include a plan covering employees in a collective bargaining group. T-7 says the permissive aggregation group can only include plans that when tested together satisfy 401(a)(4) and 410. The second sentence in the answer to T-3 and Example (2) of T-7 make clear that T-7 is meant to trump whatever conclusion we might reach from reading just T-3. Applying these regulations today, when the 410(B) regulations require that the collective bargaining unit employees be tested separately for 410 purposes, I come to the conclusion that for top heavy testing one can only aggregate the union plan with the non-union plan if there's a key employee in the union plan (under the first sentence of T-6) and cannot permissively aggregate the union plan under T-7.

[Guest]

I like your points, but disagree with your conclusion???

(That's the trouble with the regs, especially top heavy, they haven't kept up with things)

anyway, this is the way I would read it:

T-3 If union plan includes key, must aggregate for top heavy

If no key, then permissive aggregation. See Question T-7

so T-7 example 2

2 plans, Plan C covers salaried people and satisfies 410 and 401(a)(4) independently

Plan D covers union

Note: example does not state if there are any key employees.

However, the example continues...

"The fact that Plan D is a collectively bargained plan does not necessarily mean it can be permissively aggregated...

(I pause to say this implies no key employee. if there was, then the plan would have to be aggregated under T-3) Thus, even under T-7, I read that the plan may be permissively aggregated, BUT with the following requirement (from T-7)

"In order to be permissively aggregated, Plan D MUST provide contributions/benefits...that are comparable to those provided by Plan C"

oh, doesn't that make it fun if one plan is a DC and the other is a DB. hopefully in your case both plans are the same with similar formulas. if not, I think you are out of luck. I think that is the point from MWeddell reads into it, that the rules of 410 apply. In other words, I would read it that you can't permissevly aggregate if the union ees are getting less than the other plan.

[david rigby]

Great discussion!

I agree with Tom's analysis. The essence is contained in T-7 of the regs.

BTW, there is a reference in T-3 to IRC 7701(a)(46). That subsection is titled "Determination of whether there is a collective bargaining agreement." Fear not, the reference appears to be pointing out that the collective bargaining unit must exist after 3/31/84.

[MWeddell]

Well, we've at least alerted others to the relevant authorities. We all agree that applying 1984 regulations isn't the easiest thing to do either!

In example 2 of T-7, Tom Poje quoted the following "In order to be permissively aggregated, Plan D must provide contributions/benefits...that are comparable to those provided by Plan C." I don't think I'd read that as a substantive requirement (especially since it is included in an example), but rather a paraphrase of what it meant back in 1984 to satisfy 401(a)(4), a substantive requirement listed in the first paragraph of T-7.

How do we apply this today? I think Tom Poje has at least convinced me that it's ambigious. I'd apply the first paragraph of T-7 and say that one can't permissively aggregate a union and nonunion plan for top-heavy testing because one can't aggregate them for 410(B) and 401(a)(4) purposes. Tom puts more emphasis the text in the two examples of the regulation and lands at the opposite conclusion.