Owner and Union Employee at the same time?

On the client's census, they tell us that Jim owned 2.5% of the company last year (S Corp), and belonged to the Union.  He made $121k in 2020.  This year (2021) however, they tell us he owns 6% and is still in the union.  Now he's an HCE for 2021.  He's the only union person that defers (there's only one other).  So the ADP test is failing.

I thought I remember reading somewhere that a person cannot be an owner and a member of the union at the same time.  How can someone be part of management and be a union employee?  If that's true, how is it handled?

Is this ownership thru a qualified ESOP?

I don't think so.

Is he considered part of the union for the medical plan coverage but his wages and benefits are not subject to collective bargaining?

I did have an auto-repair shop (c-corp) with a 401(k); the employees decided to unionize, the owner was going to get shafted on insurance costs because his benefits would all then considered "personal coverage" or he wasn't insurable, I forget what the core issue was.  He allowed the union to come in as long as he was covered as well; agreed to an independent arbitrator for collective bargaining, and was treated as the foreman or site supervisor.  The 401k was safe-harbor match with a low integration profit sharing.  Since he didn't have discretion over his wages or benefits; business profits were held as retained earnings; he would eventually get double-taxed either in the dividend, or if he re-classified away from the c-corp.

Otherwise, we've also had a large municipal and road contractor who with a 10-year interstate highway widening project where operators and supervisors become HCE'S.  The test would vary from year to year whether or not we permissively disaggregated the union guys, but most of them were understanding enough about the "bonuses" the Plan was paying back to them.

What about the other 94% of the ownership?  In an s-corp they would have to have considered income so you should have other HCE'S?

There are other partners to total 100%.  He's listed as VP, too.

21 hours ago, Nate S said:

The test would vary from year to year whether or not we permissively disaggregated the union guys

I thought you HAD to test the union EEs separately.

On 5/4/2022 at 8:54 AM, BG5150 said:

I thought you HAD to test the union EEs separately.

Sorry, I'm confusing my excludables.

Is his compensation 100% attributable to his union-related services?  Could it be that he belongs in both testing groups, with a split of his compensation and deferrals, or a loading of his deferrals into only one portion?  Does the Plan Document delineate how to operate under such conditions, and if not, how should the Plan Administrator decide; remembering that such undefined determinations typically have to be made in favor of the participants?

Can the other union participant somehow be otherwise excludable so that the union test is HCE only?

Is he actually a 6% owner, or does his union membership reduce his voting power; especially where benefits are concerned, he could not participate or vote on any agreement without a conflict of interest.