Safe Harbor testing issues

[AndyH]

Two related companies (A and B) participate in a 401(k) plan that has a 3% SHNEC as well as an enhanced match (not more than 4% and not based on more than 6% of comp and meets the other requirements).      No ADP or ACP test is needed, correct?

Company B wants to withdraw from the match.   What testing is needed in the year following the change?   Q1: Presumably the match for Company A must be tested for 410(b).  Or is this just BRF?   

Q2  Presumably Company A now needs ACP testing, right?   Is Company B included with 0 match rates, or excluded because they are ineligible for the match?   I believe they would be included because they can defer, is that right?

Q3 If company B were moved to a separate plan and each plan passes 410(b) then Company B would not be in Company A's ACP test, correct?

Thanks for any help.

 

 

 

[Luke Bailey]

AndyH, I don't think you can restructure a SH plan into two notional plans. I assume the two companies are "related" in that they are in the same controlled group. I think B needs to form its own plan, assuming the two plans can pass coverage separately. B's plan would need to run ADP and ACP. That would have lots of ramifications that would need to be thought through. Pulling out mid-year would be a plan amendment, at least for B, and so that too would need to be analyzed for impact.

[MWeddell]

If it is split into two plans, then Company A's plan will need to be amended to provide that Company B's employees may no longer have contributions made to it.  If it's a midyear change, that'll wreck Company A's plan safe harbor status.  Can only be allowed if the participant notice contained the magic language or the plan sponsor was operating at an economic loss.

In short, I'm less optimistic than Luke seems to be that you can preserve the safe harbor status for either company.

[Luke Bailey]

59 minutes ago, MWeddell said:

If it is split into two plans, then Company A's plan will need to be amended to provide that Company B's employees may no longer have contributions made to it.  If it's a midyear change, that'll wreck Company A's plan safe harbor status.  Can only be allowed if the participant notice contained the magic language or the plan sponsor was operating at an economic loss.

In short, I'm less optimistic than Luke seems to be that you can preserve the safe harbor status for either company.

MWeddell, I am not optimistic. Just thought without researching that perhaps was not an amendment for A, only for B. If there is no explicit language addressing in reg (and I don't recall there being), or example, I think it's arguable that if B, a separate legal entity, decides to start its own plan and spin off the part of the current plan for its employees, that is not an "amendment" as to A. But again, just saying its possible without researching.