Related Employers (Coverage and Non-discrimination testing) Looking at

[James Matt Ullakko]

I am hoping someone can clear a few questions I have up about the options you have for running Coverage and ADP/ACP testing for related employers, for which I am making an attempt to detail below:

Here is an outline of the surrounding issues:

I am testing three members of a control group and this first discussion deals with trying to get the plans tested

separately AND without having to apply mandatory aggregation of the HCE's.

Here's my understanding of the rules, generally speaking related employers are always treated as single employer for NOND and coverage testing. It is allowable to test each separately if they have separate workforces and maintain separate 401(k) plans. However, the HCE's are subject to mandatory aggregation combining their deferral amts in each plan they participate in order to calculate their deferral %'s in each plan. Backtracking a bit, to determine who are HCE's for related employers 415 comp is considered the employee's compensation from any member of the the related group.

Three questions about this...

1. I found an exception to mandatory aggregation in some of Sal Tripodi's materials that the HCE's do not have to be mandatorily aggregated if the arrangements are part of plans that are disaggregated for coverage. Does this mean that as long as you disaggregate for coverage that mandatory aggregation of HCE's does not apply? Unfortunately, I am also having a hard time understanding what it truely means to disaggregate for coverage purposes

2. Assuming that mandatory agg. is applicable, then when combining deferrals to come up with def% in each plan is compensation combined as well?

3. Is this only compensation from which the employee was eligible?

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The second discussion involves permissively aggregating the three plans together in order to satisfy NOND testing. Assume that the plans are all designed the same with matching benefits, rights, and features...

Three members of a control group Plans A,B,C.

I assume that mandatory aggregation is applicable here for the HCE's and NHCE's combining eligibility and all the rest, which could increase the count for NHCE's.

I don't understand how the HCE's would look on paper. Meaning, assume an employee is considered an HCE based upon 5% owner. This person has comp of:

Plan A $40,000 defers - $2,000.00

Plan B $100,000 defers - $5,000.00

Plan C $20,000 defers - $1,000.00

When looking at this person under permissively aggregation scenario would the following be true?

The person would be an HCE and counted one time on the aggregated test. The comp would be totaled and the deferrals as well? 160,000 and 8,000 giving 5% deferral%?

How would this look if mandatory aggregation was applied to these plans being tested separately?

Thanks for any help!!!!!!!!!!!

Matt