Multiple 401k plans covering the same employee

[spiritrider]

An employer can have a 401a, 403b and 457b plan,  a DB plan and a 401k plan or separate 401k plans for employees covered under a collective bargaining agreement and all other employees, but I have had the understanding that there can not be more that one 401k plan covering the same employees. This was based on the premise that it is impossible for an administrator to serve two masters. I.e. which plan's participation requirements, plan features, etc... would apply.

Is this correct or am I wrong.  Is there any IRC, CFR or other IRS guidance confirming this either way. Or is there some level of inference that drives this.

[C. B. Zeller]

IRC 401(k)(3)(A) says that if an HCE is a participant in more than one 401(k) arrangement, their ADR must be calculated by treating them as a single plan. In other words it specifically contemplates a situation where an employee is a participant in more than one 401(k) plan of the employer and provides rules on how to test it. I don't see any problem with having multiple 401(k) plans covering some of the same employees, satisfaction of coverage, BRFs, etc. notwithstanding.

[spiritrider]

401(k)(3) Application of participation and discrimination standards, (A) 1st paragraph starts of with; "If 2 or more plans which include cash or deferred arrangements are considered as 1 plan for purposes of section 401(a)(4) or 410(b)"

Might that be referring to multiple businesses in a controlled or affiliated service group and not a single business.

[C. B. Zeller]

Members of a controlled group or affiliated service group are considered a single employer for purposes of the qualification requirements of section 401.

[CuseFan]

20 hours ago, spiritrider said:

"If 2 or more plans which include cash or deferred arrangements are considered as 1 plan for purposes of section 401(a)(4) or 410(b)"

Plans sometime need to be aggregated to satisfy coverage (410b) or nondiscrimination (401a4) and if you must combine for one then you also must combine for the other, in which case you treat the aggregated plan as a single plan. None of that precludes someone from being covered by a more than one 401k plan of an employer.

Coverage under multiple plans sometimes happens in a given year when an employee changes union/non-union status, divisions/locations within a company and/or goes to work with another member in the control group and there are different plans covering different groups of employees, in which case participation usually switches (ends/begins) when status changes. However, to be concurrently covered under multiple 401k plans of the same employer/control group is very rare - I can't recall the last time I've seen it, if ever, in 30+ years - but not precluded.

And the rules CBZ notes above were drafted to prevent HCEs from benefiting being in multiple plans and somehow circumventing the nondiscrimination rules.

[imchipbrown]

Remember, the deferral limits are on the employee, not the Plan(s).  So, you can't defer $19.5k (or $26k) to each of multiple plans.