ACP Test w. 401k and 403b

Check this out. If it works, I seriously want a gold star!

403b covers the HCE's. The HCE's are exlcuded from the 401k.  Plans both have the same match formula, so one ACP test, everyone gets the same match formula.

We're failing the ACP test.  We also happen to be passing the ADP test because of course no HCE's are making ANY 401k contributions.  How do we feel about shifting ALL of the employees deferrals into the ACP test?

Pretty neat right??

HEre is the reg:  I think it fits!

(ii) Elective contributions taken into account under the ACP test. Elective contributions may be taken into account for the ACP test only if the cash or deferred arrangement under which the elective contributions are made is required to satisfy the ADP test in §1.401(k)-2(a)(1) and, then only to the extent that the cash or deferred arrangement would satisfy that test, including such elective contributions in the ADP for the plan year or applicable year. Thus, for example, elective deferrals made pursuant to a salary reduction agreement under an annuity described in section 403(b) are not permitted to be taken into account in an ACP test. Similarly, elective contributions under a cash or deferred arrangement that is using the section 401(k) safe harbor described in §1.401(k)-3 cannot be taken into account in an ACP test. In addition, for plan years ending on or after November 8, 2007, elective contributions which are not permitted to be taken into account for the ADP test for the plan year under §1.401(k)-2(a)(5)(ii), (iii), (v), or (vi) are not permitted to be taken into account for the ACP test.

It's not clear, but it looks like 1.401(m)-2(a)(6)(iv) may prevent what you want to do. Notice the "and" in the first sentence.  I'm thinking it is saying that you can't use 401(k) deferrals in the ACP test that includes the 403(b) match because you can't aggregate 403(b) deferrals and 401(k) deferrals.  It shouldn't be that easy to distort ACP testing for an employer eligible for both a 403(b) and a 401(k).

Quote

1.401(m)-2(a)(6)(iv) Aggregation must be permitted. The plan that provides for employee or matching contributions and the plan or plans to which the qualified nonelective contributions or elective contributions are made are plans that would be permitted to be aggregated under §1.401(m)-1(b)(4). If the plan year of the plan that provides for employee or matching contributions is changed to satisfy the requirement under §1.410(b)-7(d)(5) that aggregated plans have the same plan year, qualified nonelective contributions and elective contributions may be taken into account in the resulting short plan year only if such qualified nonelective and elective contributions could have been taken into account under an ADP test for a plan with that same short plan year.

Also, is the 401(k) deferral eligibility immediate for everyone?

 §1.401(m)-1(b)(4)

I read through this and didnt see any problems.  It says things like different plan year ends cant be aggregated, and different testing methods can't be aggregated.  It doesnt seem to refer to the fact 403b elective deferrals and 401k contributions cant be aggregated.

It uses the aggregation rules in 1.410(b)-7.  I'm reading the first sentence of 1.410(b)-7(f) as saying it.    

(f) Section 403(b) plans. In determining whether a plan satisfies section 410(b), a plan subject to section 403(b)(12)(A)(i) is disregarded. However, in determining whether a plan subject to section 403(b)(12)(A)(i) satisfied section 410(b), plans that are not subject to section 403(b)(12)(A)(i) may be taken into account.

That does seem to pull the rug out from under me!

I checked with an industry "guru" and he shot it down too :(

Did the "guru" give the same reason?  Or, a different one?

He said that int he 403b regs there was a statement that you can't use elective deferrals in the ACP testing. I was not able to locate that site but the case had already completely collapsed by then so I did not push it.  It was like I had pension royalty on the phone and I didnt want to push my luck!

I consider Kevin C a "guru" on these boards.  

Oh geeze, me too!  But the person I spoke with, probably every "senior" pension consultant is very familiar with this person through national speaking engagements and widely read publications.  Kevin C's distinguished reputation does not extend beyond beyond these boards!  At least not just as Kevin C.  Who knows, maybe he is really Kevin Costner?

Batman.

I was thinking Field of Dreams!