Question 183: Your Multiple Employer Plan information has been great! You've covered how service is counted for someone in multiple locations and how the 415 limit is handled. For purposes of allocating the contribution, do you consider the compensation from each employer separately and, if so, how/when is the compensation limit factored in?
Answer: Good question. Let's look at the various issues that are affected by compensation:

Determination of the 415 percentage limit

Testing for nondiscrimination (including the ADP test)

Determination of the 401(a)(17) compensation limit

Determination of the deduction limit under 404
Now, we look at the basic scheme for handling multiple employer issues. IRC 413(c) lists several issues for which the employers cosponsoring the plan are aggregated, such as determination of years of service for participation. Other sections of the Code or regulations contain similar provisions (such as the regs under IRC 415, which treat the employers as one). Other than those specific issues, the employers are treated as separate entities. This applies for coverage testing, nondiscrimination, etc. In other words, if you can't find something saying the employers are aggregated, then they are not aggregated.

So, applying that principle to the four compensation issues we've identified, here's how it stacks up:

Compensation from each employer is aggregated to determine compliance with the 415 percentage limit.

Each employer tests for nondiscrimination separately, so each employer looks only at its own compensation.

According to Treas. Reg. 1.401(a)(17)-1(b)(4), the employee has a separate $200,000 compensation limit for each employer.

If the plan was established after 1988, deduction limits are computed separately for each employer, so each looks only at its own compensation. However, if the plan was established before 1989, then usually there is a single deduction limit and so compensation for 404 purposes is determined on an aggregate basis.
I plan to address multiple employer plans, with my usual copious examples , as a new chapter in the third edition of my book, Who's the Employer.

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