401(k) Plan for Collectively Bargained Employees -- Is ADP/Safe Harbor Language Required?

A client maintains a separate 401(k) plan for its collectively bargained employees. In some cases, non-bargained employees participate in the plan. My questions are:

(1) does the portion of the plan benefiting non-collectively bargained employees need to satisfy coverage and does that portion of the plan have to either satisfy ADP testing or have a safe harbor design? As a corollary to the question, does the plan need to provide that this portion will be required to satisfy the ADP test or have a safe harbor design?

(2) If the sponsor elects to permissively aggregate the portions of the plan benefiting collectively bargained employees with the portion benefiting non-collectively bargained employees, must the plan provide in all cases that the ADP test or a design-based safe harbor must be satisfied with respect to both collectively bargained employees and non-collectively bargained employees? If so, can the application to collectively bargained employees be made conditional upon the sponsor's election to permissively aggregate both groups?

IRS regulations at 1.410(b)-2(b)(7) provide that a plan benefiting solely collectively bargained employees is treated as satisfying  minimum coverage requirements. If a plan benefits both collectively bargained employees and non-collectively bargained employees, the portion of the plan benefiting collectively bargained employees is treated as a separate plan from that portion of the plan benefiting non-collectively bargained employees. The portion benefiting collectively bargained employees automatically is treated as automatically satisfying the coverage requirements.

Turning to IRS nondiscrimination requirements, Reg. Section 1.401(a)(4)-1(c)(5) provides that the nondiscrimination requirements are treated as satisfied by a collectively bargained plan that automatically satisfies the minimum coverage requirements. As applied to 401(k) plans, generally the regulations follow the rules applicable to the minimum coverage requirements. Specifically, with respect to collectively bargained employees, the regulations permit the portion of a plan benefiting collectively bargained employees to be permissively aggregated with the portion of a plan benefiting non-collectively bargained employees. See Reg. Section 1.401(k)-1(b)(4).

You cannot permissively aggregate CBA and non-CBA populations - there is mandatory disaggregation. You may only permissively aggregate different CBA populations which are otherwise treated as their own separate "plan", see below, (v)(B) of that regulation. Therefore, I think you need plan language governing required testing.

(B) Permissive aggregation of collective bargaining units. Notwithstanding the general rule under section 410(b) and § 1.410(b)-7(c) that a plan that benefits employees who are included in a unit of employees covered by a collective bargaining agreement and employees who are not included in the collective bargaining unit is treated as comprising separate plans, an employer can treat two or more separate collective bargaining units as a single collective bargaining unit for purposes of this section and §§ 1.401(k)-2 through 1.401(k)-6, provided that the combinations of units are determined on a basis that is reasonable and reasonably consistent from year to year. Thus, for example, if a plan benefits employees in three categories (e.g., employees included in collective bargaining unit A, employees included in collective bargaining unit B, and employees who are not included in any collective bargaining unit), the plan can be treated as comprising three separate plans, each of which benefits only one category of employees. However, if collective bargaining units A and B are treated as a single collective bargaining unit, the plan will be treated as comprising only two separate plans, one benefiting all employees who are included in a collective bargaining unit and another benefiting all other employees. Similarly, if a plan benefits only employees who are included in collective bargaining unit A and employees who are included in collective bargaining unit B, the plan can be treated as comprising two separate plans. However, if collective bargaining units A and B are treated as a single collective bargaining unit, the plan will be treated as a single plan. An employee is treated as included in a unit of employees covered by a collective bargaining agreement if and only if the employee is a collectively bargained employee within the meaning of § 1.410(b)-6(d)(2).