Form 5500-SF Part VIII 14a

[TH 401k]

I'm working on Form 5500-SF and come up with one clarification.

My plan fails coverage test and ABT and passing by combining another plan with my plan and passes coverage. In this scenario, whether I have to check yes for "Does the plan satisfy the coverage and nondiscrimination tests of Code sections 410(b) and 401(a)(4) by combining this plan with any other plans under the permissive aggregation rules?".

Another plan combining both ADP ACP and 401(a)(4) with another plan. Whether I have to check Yes for this scenario for 14a.

Is possible explain what is the difference between these two scenarios and give me link of documents which explains this scenario.

Thanks in advance!!

[CuseFan]

The requirement is that if you aggregate plans to satisfy coverage you must also satisfy nondiscrimination testing (ADP, ACP and/or general 401(a)(4) as applicable) for that aggregated "plan" and vice versa. In both instances you describe you would check yes.

[TH 401k]

7 minutes ago, CuseFan said:

The requirement is that if you aggregate plans to satisfy coverage you must also satisfy nondiscrimination testing (ADP, ACP and/or general 401(a)(4) as applicable) for that aggregated "plan" and vice versa. In both instances you describe you would check yes.

But here"Does the plan satisfy the coverage and nondiscrimination tests of Code sections 410(b) and 401(a)(4) by combining this plan with any other plans under the permissive aggregation rules?" it is not mentioned 401k deferral (ADP) and 401m (Match). My understanding is it denotes coverage as 410b and 401a4 in case of failure of coverage and corrective measures for coverage by taking ABT. Is it correct? If you think otherwise, share your thoughts on my comments.

[CuseFan]

IRC Section 401(a)(4) is a very brief paragraph that says contributions and benefits cannot discriminate in favor of HCEs. The regulations start similarly and then say (I'm paraphrasing) that a 401(k) plan satisfies 401(a)(4) by passing the ADP test and a 401(m) plan satisfies 401(a)(4) by passing the ACP test. In that regard, 401(a)(4) is all encompassing, if you will, for nondiscrimination.

The 5500-SF instructions ask if plan was permissively aggregated to pass coverage and then state if so, must also be aggregated for nondiscrimination. If you have to aggregate a 401(k) and/or 401(m) component to satisfy coverage then clearly you need to answer yes.

Even though the legal requirements include the converse, the instructions do not explicitly mention that scenario. One could argue that since you aggregated to satisfy nondiscrimination that you had to aggregate for coverage and you get to the same place, but I can also see the flip side. The reality of the matter is that if two plans would satisfy coverage individually but were aggregated for nondiscrimination, they're certainly going to satisfy coverage in the aggregate. The 5500 question appears to be concerned with coverage rather than nondiscrimination, so maybe aggregating an ADP and/or ACP test doesn't warrant a yes for that. I'd be interested in other opinions on that.

[Paul I]

@TH 401k The compliance question is worded somewhat awkwardly which leads to overthinking how to respond.  There really are three questions to ask yourself:

• Was the plan combined with another plan to pass coverage?
• Was the plan combined with another plan to pass nondiscrimination?
• Were any combinations done using the permissive aggregation rules?

If you answer yes, yes and yes, check yes.  Otherwise, check no.

Note that a plan fails 401(a)(4) if it is subject to ADP or ACP testing and - uncorrected - fails either test.

The IRS added this question to the 5500 to "improve tax oversight and compliance of tax-qualified retirement plans." They are collecting data about the use of permissive aggregation to see if this a topic to target in their compliance reviews.