Testing 401k plans in controlled group

My question is on how to run the ACP test and the BRF test for 2 401k plans that are related but have different components - 2 related employers each have a safe harbor 401k plan providing the 3% safe harbor non-elective, but one 401k plan (401k plan 2) does not have a discretionary match (and this match formula is a tiered match based on years of service which requires a BRF test). The plans are being permissively aggregated to pass 410(b) coverage for the deferrals and safe harbor 3% non-elective purposes. It appears that the match component would have to be tested on a disaggregated basis because 401k plan 2 does not contain a match feature. So if the 2 plans pass coverage for purposes of the match by excluding the non-benefitting employees in 401k plan 2, then the ACP and BRF test for match would be run on the single plan level in 401k plan 1?

Any help would be appreciated.

Thanks!

last sentence of

1.401(m)-1(b)(4)(iii)(B) Plan with inconsistent ACP testing methods

...similarly, an employer may not aggregate a plan using the ACP safe harbor provisions and another plan using the ACP test section

at the ASPPA conferences the IRS personal voices the opinion (such opinions do not necessarily reflect an actual Treasury position, but using the reg cite interpreted it as:)

Because the discretionary match does not provide a contribution on amounts deferred up to 4 percent, this would fail to satisfy the ACP safe harbor. If the first part is split off (100 percent on first 4 percent deferred), then what is left is a discretionary match (permitted in ACP safe harbor) of up to 100 percent of deferrals between 4 and 6 percent. But this means that, under this separate formula, there is no match on deferrals between 0 and 4 percent. This would violate the rule at IRC § 401(m)(11)(B)(ii) that matching contributions cannot increase as an employee's deferrals rise. [ASPPA Conference 2012 Q and A #45]

If one or more match formulas are discretionary and could be implemented in such a way as to not satisfy safe harbor (e.g., not capped), then it cannot be aggregated with the safe harbor formula to determine if it satisfies the nondiscriminatory requirements under the safe harbor rules. [ASPPA Conference 2013 Q and A #21]

Can't get much more Grinch than that! and since you have to run coverage the same as nondiscrim testing you can't aggregate for coverage.

Uh, Tom..........

The OP says that each plan is a 3% non-elective Safe Harbor. Does that change your answer?

Both plans have  mirror safe harbor provisions using the 3% nonelective. One plan has a tiered match which does not qualify for the ACP safe harbor match and thus it must be ACP tested and BRF tested. My question is do I run coverage and exclude the non-benefitting employees of the other 401k in the controlled group? Or do i include them in the ACP and BRF test a 0? The BRF test has 3 match levels and they do not fall in any level since they are  not match eligible. It seems that coverage test for the match is what I need? Thanks!

Mike - I wasn't referring to the ADP test.

I read the question to say one plan has a discretionary match and the other has a tiered match which to me says they have inconsistent formulas. I only quoted the part of the regs that said you can't aggregate a safe harbor with a non safe harbor, I could have included the part that said you can't aggregate a plan tested using prior year with one using current year. I would hold if one plan has discretionary and another tiered that is inconsistent.

I read the question to say that one plan has no match at all and the other has a matching formula.  The matching formula is written into the plan.  That is, it is not discretionary.

Correct - one plan has a tiered match the other plan no match. Is this a matter of coverage testing even though other parts of the plan are being permissively aggregated in order to pass coverage?

If you have any thoughts from prior experience please share. I realize it is not legal advice, etc.

Thanks!

I think it is pretty clear that for purposes of testing compliance with 410(b) relative to matching contributions you must only include those eligible for a match.  In your case that means treating everybody in Plan 1 as benefitting and everybody in Plan 2 as not benefitting.  You already acknowledged this so I'm not saying anything that is inconsistent with your initial post.

As you also point out in your initial post you have to test the separate tiers of the matching formula under the "benefits, rights and features" (BRF) rules of 1.401(a)(4)-4.  BRF rules are not well understood and include a facts and circumstances component.  All I can say is that you need to read 1.401(a)(4)-4 in detail to determine if your tiered matching runs afoul of 1.401(a)(4)-4.

for coverage, yes, everyone is included, so many show as includable and not benefitting.

I believe, in answer to your question, how do you treat those not benefitting...

well, ignoring the controlled group, if I had a plan with a  last day rule or hours requirement for a match, they would not show on the ACP test. So, I think for BRF purposes, those people are also not included at all (e.g. they are not included in the deniminator

Thank you both!!!