ADP Testing - Mandatory Aggregation

[415 Limit]

Company A and Company B are owned 50/50 by the same two individuals.  Each Company sponsors their own 401(k) plan (Plan A and Plan B), neither which are safe harbor.  The owners and their spouses are eligible to participate in both plans.  Plan B only employs the owners and their spouses.

Plan A runs on a fiscal year ending 7/31, Plan B runs on the calendar year.

It's my understanding that we have to ADP test these plans together, but I'm unclear on how to do this.  Do we need 7/31 census data for the calendar year plan and then run the combined ADP test, or do we need 12/31 census data for the 7/31 plan and then run the combined ADP test, or?  Sorry if this is an elementary question but I just can't wrap my brain around this.

 

Mandatory Aggregation

•  Mandatory aggregation of HCEs is required when an HCE is eligible (not just deferring) for more than one 401(k) or 401(m) arrangement

•  Mandatory aggregation of HCEs is not applicable if the plans cannot be permissively aggregated (i.e., mandatorily disaggregated groups – union/non-union). However, mandatory aggregation of HCEs still applies if permissive aggregation is not permissible due to different testing methods, different plan year ends, or one plan is safe harbor.

[CuseFan]

(1) You clearly have a control group, and (2) plan B would fail coverage on its own and would have to be aggregated with plan A to satisfy coverage, which would also require plans to be aggregated for nondiscrimination (ADP test). HOWEVER, plans are required to have the same plan year if aggregated for testing, so that is your problem.

Whoever set up the plans, or at least the second plan, should have recognized that and addressed. Amending one of the plan years to match the other and then testing that plan year I think is the only viable correction method, and may have to be done via a VCP submission.