Coverage Testing - Controlled Group

Company A has a standard 401(k) no allocation restrictions for match - passes coverage

Company A purchases Company B ( stock purchase) will be a controlled group. Company B has a Safe Harbor 401(k) and passed coverage before the purchase.

Intent is to maintain two separate plans. Company B may move to non Safe Harbor.

Since all employees of the controlled group are deemed employees of Company A, am I correct is saying coverage testing must be satisfied for each. However since one is  safe harbor and one is not, cannot aggregate.  

Company A HCE 56 Company B HCE 6

Company A NHCE 343 Company B NHCE 1043

Based on these number Company A will fail Coverage.

If after the transition period Company B is amended to a standard 401(k) with the same eligibility and match as Company A, is the coverage testing issue a moot point as long as each passes coverage separately/

This hurts my head!!

Regarding the safe harbor, as A does not have allocation conditions for the match you may be able to get around that issue and aggregate the testing, if the eligibilities are different you would have to prove it passes both ways to do so.

Post-transition, if A and B are amended to mirror each other, then coverage testing will pass on a dis-aggregated basis because each group will include all the employees, and you can then test ADP/ACP on a separate basis.

Post-transition period, you can aggregate the plans for testing if they use the same method (safe harbor, current year, prior year) to satisfy ADP/ACP. Since the plans together would cover all employees there shouldn't be a coverage issue in that case.

If eligible, you could apply for QSLOB status and continue to test them separately.

Or, you could just merge the plans into one and forget all this.