Question Posed in other topic and no one answered - involves AFG and other options for HCES rather than participating in plan

[HarleyBabe]

I'm looking for some direction, response, something to point me in the right direction.  Currently have a 401(k) that due to a change in ownership has resulted in an Affiliated Service Group situation.  Confirmed ASG.  Therefore, we must test the two different companies owned as one.  Coverage will fail.  The HCE/owner who is my client is willing not to participate so that coverage will pass but we need to find something appropriate outside the plan for savings purposes for him.  I need options.  Thought of non-qualified immediately but it's an LLC and he's a partner so my understanding is that there would be no current tax deduction for him.  Can someone suggest other options for this employee outside of a qualified plan?  Thank you.

[Paul I]

Coverage testing may seem like a bright line pass/fail, but I wouldn't look elsewhere right away.  There are many different strategies to get a plan to pass coverage.  Keep in mind that a "plan" for coverage testing is performed separately for elective deferrals, matching contributions and non-elective employer contributions (without getting into average benefits testing).  You may be able to structure some of the benefits in a way to pass coverage at an affordable cost and provide a meaningful benefit to your client.