ADP testing controlled group

I have 3 employers and 3 plans - all are part of a controlled group. One plan is a safe harbor plan since 2011.  Each plan has always conducted coverage and ADP/ACP testing on its own -  they never considered the controlled group aspect until now.  Is there an issue on a controlled group basis if each plan has always passed on an individual basis? 

Thank you.

No way to tell.  Have to test coverage using the information from the aggregated controlled group unless they qualified and registered as SLOB's (separate lines of business).

Thanks, Mike. I can test coverage on the aggregated controlled group basis.  What about ADP/ACP testing with one group member having a safe harbor plan?

1.401(k)-1(4)(iii)(B)

last sentence

Similarly, an employer may not aggregate a plan (within the meaning of section 1.410(b)-7(b)) using the ADP safe harbor provisions of section 401(k)(12) and another plan that is using the ADP test of section 401(k)(3)

so, the answer is no.

Tom:

I think that's good news - If all 3 have passed the ADP tests on their own, then, I do not need to worry about ADP testing on a controlled group aggregate basis?  What about the 2 who do not have safe harbor plans - do I have to aggregate those for ADP to confirm they would pass aggregated?

Thanks!

JPete, you misunderstand.  Using the information from the controlled group does not mean doing one test.  It means doing three tests.  Post some body counts (HCE's, NHCE's) and somebody will show you how it works.

Thank you. So for example in 2016:

Plan 1: Safe Harbor with 4 HCE (all deferring with 10.81% ADP) and 252 NHCE (193 deferring with 4.09% ADP)

Plan 2: Non-safe Harbor with 1 HCE (not deferring) and 15 NHCE (11 deferring with 4.07% ADP)

Plan 3: Non-safe Harbor with 8 HCE (7 deferring with 4.91% ADP) and 101 NHCE (69 deferring with 4.22% ADP)

Your help is greatly appreciated.

Plan 1 is fine. Plan 2 is safe if you pass the Average Benefits Test (which involves employer wide data). Plan 3 is safe if you pass the Average Benefits Test (which involves employer wide data) and satisfy an easy-to-satisfy facts and circumstances test (which it goes without saying that I think you will probably satisfy). Can you define your role?  Are you a plan sponsor?

I'm an attorney representing the plan sponsors who are concerned about whether the controlled group status has a negative impact on the plans.  I have all of the testing data for each plan (separately) and need to advise them about any issues. The employer of plan 3 was just added to the group in 2016, so I believe that plan is treated as passing coverage for 20176 and 2017. 

What other impact might the controlled group have on testing?  When you mention above that "Plan 2 is safe if you pass the Average Benefits Test (which involves employer-wide data)" is that just for the employer of Plan 2 or do we combine all employees?

Thank you!

you could permissively aggregate plans 2 and 3

If you aggregate for coverage you must aggregate for ADP testing as well. (or vice versa)

the key term is 'permissive' there is no requirement to do so. if plans pass on their own then there is no need to combine.

even though you can't aggregate a safe harbor and non-safe harbor plan for other purposes, there is one avg ben pct test. everything gets combined

You are correct about plan 3 as long as the transaction satisfied 410(b)(6)(C).  When I say employer wide I mean taking into consideration all employees of all three entities. However, now that there is a 410(b)(6)(C) transaction to consider, the focus for testing shifts from current year counts to a determination on a specific date (see below).

One little discussed consequence of a transaction that satisfies 410(b)(6)(C) is that all plans are treated as passing coverage during the transition period.  So, if the testing required to satisfy 410(b)(6)(C) pans out all three of your plans are treated as passing coverage for 2016 and 2017.

In that case, you would look to the satisfaction of 410(b) "immediately before" the transaction for Plans 1 and 2 [testing based on those two employers comprising a controlled group at that time] and also for Plan 3 [testing based on that employer and whatever other employers comprised a controlled or affiliated group at that time].  This stuff can get real messy, real quick. 

55 minutes ago, Mike Preston said:

... and satisfy an easy-to-satisfy facts and circumstances test (which it goes without saying that I think you will probably satisfy). 

Forget this sub-comment, I was basing it on an ultra-conservative (and fictitious) body count.

OK I will confirm the average benefits test is met by considering all employees of all 3 controlled group members (and for the 2 members for the years during which there were only 2 members of the controlled group).

Assuming that average benefits test checks out, and assuming each of controlled group members passes the ADP/ACP testing individually, then I will not aggregate Plan 2 and Plan 3 for ADP purposes.

One consideration here is whether the clients want to continue with all 3 plans or move to a common plan.

Thank you, Mike and Tom, this is very helpful.