QSLOB Testing with Multiple Plans

I have a client (Company A) that sponsors a 401(k) and a DB plan.  A couple of years ago they acquired another company (Company B) that sponsors a 401(k) plan.  The transition period funder 410(b)(6) has now expired and they may have a testing issue unless they can obtain QSLOB status.

In testing for QSLOB status, both companies meet the 50 employee requirement and the administrative scrutiny requirements under 414(r).  Next up is the Gateway test under 1.414(r)-8 which is causing a potential problem.  I believe that each of the 3 plans has to satisfy 410(b)(5)(B) on an employer-wide basis, and can do so by each having a coverage ratio greater than the unsafe harbor percentage.  While each of the 401(k) plans satisfy this requirement, the DB plan unfortunately does not.

Based on this, does that mean Company A fails to be a QSLOB based on the DB plan's coverage failure?  Or can Company A's 401(k) plan at least be tested on a QSLOB basis since that plan does meet the coverage requirements and the sponsor satisfies all of the other QSLOB requirements.  In that case at least we'd be good for the 401(k) plan and the DB plan could then explore other options (hard freeze or open up to new entrants).

A colleague suggested that Company A as a whole could be tested on an employer-wide basis, not each individual plan.  The argument being that it's the QSLOB itself that needs to be tested, not the plans of the QSLOB.  But that did not sound correct to me.

Any suggestions are welcome.

Every company in a group of companies will be in a QSLOB if any company is in a QSLOB, and a company must be in only one QSLOB.  In this case, you will have a QSLOB for Company A and a QSLOB for Company B. 

Note that QSLOBs (Qualified Separate Line of Business) are all about the companies and not about the plans.  You cannot have Company A's 401(k) plan tested on a QSLOB basis and have the DB excluded from than QSLOB. 

Once all companies meet the conditions to be a QSLOB, you can then pretty much separately look at each QSLOB and its plans without regard to the other QSLOBs and their plans.

This is an oversimplification but may help suggest a path forward for you.

Okay I think this makes sense and actually provides us with a better path forward than I thought was available.  If I understand you correctly, in trying to determine if the SLOBs are QSLOBs we don't yet look at the individual plans but instead look at the coverage of each Line of Business.  Said another way, we would do a ratio percentage test based on nonexcludable employees of Company A and Company B, while disregarding which of the specific plans the employees of Company A benefit under.

If that is correct than I think we're good.