Timing for testing?

[Guest]

When are 401(k) plans tested? Eg if you have employers coming in and out of the control group during the year, do you count all those employees or just those at year end?

[MWeddell]

In general, one counts employees who at any time during the plan year were eligible to make elective deferrals to the plan.

If you've got an employer who joins the controlled group during the year, IRS representatives have informally said that the 410(B)(6)© m&a transition period applies to other types of compliance testing, but there are no regulations helping to define this. Keep in mind that the coverage of the plan may not have significantly changed other than the employer joining the controlled group.

On the other hand, if you've got an employer who leaves the controlled group during the plan year, you need to include its employees in the 401(k) test for the part of the year in which they were eligible to contribute and a part of the controlled group. Maybe a very aggressive interpretation of the 410(B) transition period rule (not one I'd advocate) would allow one to also consider contributions and compensation after the employees left the controlled group, but there's nothing that would allow one to ignore these employees altogether.

I hope this helps. If I've not answered your question, dsilver, perhaps we need more information regarding the situation you're dealing with.

[Guest]

Thanks that gives me a general idea.