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ProblemsandIssueswithNondiscriminationRules-CaseStudiesMarch18,2003Toprotecttheconfidentialandproprietaryinformationincludedinthismaterial,itmaynotbedisclosedorprovidedtoanythirdpartieswithouttheapprovalofyourorganizationandHewittAssociatesLLC1ProblemsandIssueswithNondiAgendaControlledGroupIssuesPlanAggregationIssuesDeterminationofHCEsDeterminationofMostValuableAccrualRates2AgendaControlledGroupIssues2ControlledGroupIssues

3ControlledGroupIssues3GroupstoIncludeWhoknowsthegroup?Arethereleasedemployees?Arethereaffiliatedservicegrouprelations?Arethereacquisitions?4GroupstoIncludeWhoknowstheIssue1:

Whoknowsthecontrolledgroup?EssentialtoinvolvelegalcounselHRcontactsmaynotknowwhetherornottheyhaveaparentorsubpercentageofownershipiftheydothatforeignparentownsotherU.S.companieswhetherbusinessrelationshipsconstituteanaffiliatedservicegrouporleasingarrangementRequiresinterpretationsofcorporatelawWEDONOTPRACTICELAW5Issue1:

WhoknowsthecontroIssue1:

Whoknowsthecontrolledgroup?ABCDEFGHKJIUSAUSAUSAUSAUSAUSAUSAUSAFranceFranceCanadaAcquires80%100%80%40%40%50%50%-acquiredprioryear85%0%-Leasinggrp0%-MgtSvcsonly0%-SvcsonlyExercise:Identifycontrolledgroupsinyears0,1,and2,assumingacquisitionsadmittedtocontrolledgroupatendoftransitionperiod6Issue1:

WhoknowsthecontrolIssue1:

Whoknowsthecontrolledgroup?Situation:CompanywithforeignownershipFamily,Inc.familycompanyownerretiringSellstoNewDad,Inc.,alargeEuropeancompanysochildrendon’ttakeoverFamily,Inc.checksandfindsotherUScompaniesownedbyNewDadtoincludeintestingLaterFamily,Inc.findsthatNewDad’sCanadiansubsidiaryalsoownsadditionalUSentitiestoincludeintesting,butwondersaboutfindingothers7Issue1:

WhoknowsthecontroIssue1:

Whoknowsthecontrolledgroup?Situation:HoldingcompanyAllAloneCompanyisacquiredbyaholdingcompany(HoldMyHandButPretendI’mNotHere,Inc.)AllAloneishappyitstillgetstomaintainitsownplans,payroll,doitsownfilingsBut,nowAllAlonemustfigureoutwhoelseHoldMyHandownsandhowtocollectdatafromwhoinordertodoitstesting8Issue1:

WhoknowsthecontroIssue2:

Arethereleasedemployees?LeasingarrangementsConsideredleasedemployeeifprovideservicespursuanttoanagreementservicesperformedsubstantiallyfulltimeforatleastayearservicesprovidedunderdirectionofrecipientemployernotcoveredbyasafeharborretirementplan9Issue2:

ArethereleasedempIssue2:

Arethereleasedemployees?Situation:TypicalleasingarrangementsInNDTplanningmeeting,WhoMe,Lease?Co.statestheyhaveonly3leasedemployeesjokespassingasmallgroupinthehallthatwehadjustpassedalltheirleasedemployeesAfterreviewingaleasedemployeechecklist,WhoMeLeasecallsbackwith200leasedemployeessincethecontrolledgrouphadonly2000NHCEsbefore,the75%ratiotestchangesto68%andnowrequiresanaveragebenefitpercentagetest10Issue2:

ArethereleasedempIssue2:

Arethereleasedemployees?Situation:CompanyemployeesworkatJVDivisionJisownedbyBiggerFishCompanyBiggerFishCompanyspinsoffDivisionJtoformajointventureDivisionJemployeesbecomeemployeesoftheJVBiggerFishCompanyalsohasafewemployeeswhoremainBigFish,butworkattheJVtheseemployeesaretestedasemployeesbyBiggerFish,butalsomustbeincludedasleasedemployeesbytheJV11Issue2:

ArethereleasedempIssue2:

Arethereleasedemployees?Situation:CompanyacquiresemployeesWeDoEverything,Inc.acquirestheofficestaff,theirportionoftheretirementplan,andthewholebuildingoftheWeDon’tDoFloorsCo.TheprofessionalstaffofWeDon’tcontinuestoworkinthebuilding&controltheworkoftheofficestaffWeDoteststheofficestaffasemployeesWeDon’tincludestheofficestaffasleasedaggregatesofficeplanasifitsown12Issue2:

ArethereleasedempIssue3:

Arethereaffiliatedservicegroups?AffiliatedServiceGroupsNoownershipinvolved,basedinpartonregularprovisionofservicesormanagementservicesbyaserviceorganizationDon’tforgetaffiliatedservicegroupsofaffiliatedservicegroupsIRSwillruleviaForm5300filingwhetheranaffiliatedservicegrouprelationshipexists13Issue3:

ArethereaffiliatedIssue3:

Arethereaffiliatedservicegroups?Situation:Companyacquiresemployees-2WeDoWindows,Inc.acquirestheofficestaff,theirportionoftheretirementplan,andthewholebuildingoftheWeDon’tDoWindowsCo.TheprofessionalstaffofWeDon’tcontinuestoworkinthebuilding&controltheworkoftheofficestaffAnaffiliatedservicegrouprelationshipexistsWeDoandWeDon’taretestedasonecontrolledgroup14Issue3:

ArethereaffiliatedIssue3:

Arethereaffiliatedservicegroups?Situation:AttorneysdisagreeWeDoEverything,Inc.nowacquiresWeDoWindows,Inc.TheaffiliatedservicegrouprelationshipiscausingitsplantofailunderthenewcontrolledgroupTheattorneyforWeDoWindowsthinksitshouldpasssincetheyfeeltherelationshipwithWeDon’tDoFloorsshouldalsobeanaffiliatedservicegroupTheattorneyforWeDoEverythingdisagrees15Issue3:

ArethereaffiliatedIssue4:

Whataboutacquisitions?TransitionruleapplicationNotmuchguidance Generallyagreedthetransitionrulecan’tbereliedontoavoidtestingindefinitelyiffrequentM&Asomeattorneyssuggesttestingthecompanyanditsacquisitionasseparatecontrolledgroupsuntiltheendofthetransitionperiodsomesuggesttestingthecompanyonlywithoutitsacquisitionuntiltheendofthetransitionperiodsomeignorethetransitionrule16Issue4:

WhataboutacquisitiIssue4:

Whataboutacquisitions?Situation:SeparatetestingduringtransitionAllTogetherNow,Inc.acquiresNotQuiteTogetherYet,Inc.andinstructsNotQuiteTogethertocontinuetestingasusualuntiltransitionendsNotQuiteTogethertestsitsmultipleemployerplanplanprovidescutstoHCEsAftertransition,AllTogetherNowattorneygetsinvolvedintestinganddeterminesthereisasingleemployer,notmultipleemployers17Issue4:

WhataboutacquisitiGroupstoExcludeAretheremultipleemployerplans?Aretherejointventures?Whataboutthetax-exemptexclusion?18GroupstoExcludeAretheremulIssue1:

Anymultipleemployerplans?MultipleemployerplansEachemployeradoptingamultipleemployerplanmusttestseparatelyfromotheradoptingemployersHowever,failingresultsforoneadoptingemployeraffectthequalifiedstatusofallintheplan19Issue1:

AnymultipleemployeIssue1:

Anymultipleemployerplans?Situation:PlanhasadoptingemployersWildBlueCompanysponsorsaprofitsharingplanandLimpaLot,Inc.andComeFlyWithMe,Inc.alsochoosetoadopttheplan.ComeFlyusesthe“top20%”electionforHCEs.LimpaLotdissolves,butComeFlyhiresmanyoftheLimpaLotemployees.ComeFlyincludesitsnewemployeesfortesting,butignoresthemforHCEdetermination.20Issue1:

AnymultipleemployeIssue1:

Anymultipleemployerplans?Situation:ContinuesbenefitsaftersaleWildBlueCompanysellsitsFlapYourWingsdivision,butallowstheemployeestocontinueinitsplansforoneyear.ThenewFlapYourWingsCompanybecomesanotheradoptingemployerfortheyear.TheWildBlueCompanywilltestincludingFlapYourWingsemployees/benefitsuptosaleFlapYourWingswilldoitsowntestingoftheplanfromthesaledateuntilbenefitscease21Issue1:

AnymultipleemployeIssue2:

WhathappenswithJVs?JointVenturesWhenthereisnotan80%ownershiprelationshipforajointventure,eachgroupbecomesaseparatecontrolledgroupAsstatedpreviously,theremaybesomeemployeesincludedintestingforboth,asaleasedemployeeinoneentity22Issue2:

WhathappenswithJVIssue2:

WhathappenswithJVs?Situation:ContinuesbenefitsafterJVYouCompleteMe,Inc.andDitto,Inc.eachspinoffdivisionstoformajointventure.TheemployeesfromeachcompanyremainintheirrespectiveplansandtheJVbecomesanadoptingemployerofbothplans.NeitherplanpassestestingwithrespecttotheJV23Issue2:

WhathappenswithJVIssue3:

Whatabouttax-exemptexclusions?Tax-exemptexclusionOnlyallowedfor401(k)plantestingRequiresnotax-exemptemployeesbenefitingin401(k)Requires95%coverageofnontax-exemptemployeesinthe401(k)planIfrequirementsmet,401(k)plantestingfor410(b)canexcludetax-exemptsfromthecontrolledgroup24Issue3:

Whatabouttax-exempIssue3:

Whatabouttax-exemptexclusions?Situation:ForProfitshaveown401(k)plansYouKeepItCompanyis“notforprofit”andacquiresWe’llTakeIt,Corp.,a“forprofit”companySmallerWe’llTakeIthasfourdivisions,eachwithitsown401(k)planEvenaggregated,401(k)plansfail410(b)nootheremployeeslefttooffer401(k)toimproveresultsNodivision’s401(k)plancovers95%ofWe’llTakeItemployeestoexcludetax-exempts25Issue3:

Whatabouttax-exempWhentoAggregatePlans

26WhentoAggregatePlans26Issue1:

Can’tPassNCT?Situation:TwoplanswithdifferentBRFsCompanyhastwoplanswithidenticalformulasOneplanisdiscriminatoryalone,sodesirestoaggregatewithsecondplanBRFsaredifferent,butthesecondplan’sBRFsaremoregenerous,socanbeaggregatedwithfirstplan’sBRFstopassFrequentrequeststoimprovefirstplanbenefitsandBRFsaremonitoredtoensuretestingcompliance27Issue1:

Can’tPassNCT?SituaIssue1:

Can’tPassNCT?Situation:PlansamendedtobeidenticalWeAreAllIndividuals,Inc.hasadiscriminatoryplanTheplanaggregateswithasecondplanFirstplanrequirescutstoHCEstoensurepassingandcaneliminate401(a)(4)cutsifaggregatedplanissafeharborFirstplanwon’tgiveupaccrualsforterminations,andcompanyinsistsonlast-dayforsecondplan28Issue1:

Can’tPassNCT?SituaIssue2:

AggregatingtoAvoidABT?Situation:29Issue2:

AggregatingtoAvoidIssue2:

AggregatingDBandDC?Situation:DB/DCplancan’tpassgatewaysPSplanforOverTheredivisionemployeesanddefinedbenefitplanforOverHeredivisionOverTherePSprovides6%torankandfile,3%toexecutives(rankandfileincludessomeHCEs)OverHereisadiscriminatorygroupprovidingdefinedbenefitplanwith1%ofpayformulaHighestHCEallocationisaDBparticipantwith38%AverageNHCErateforDBis2.5%30Issue2:

AggregatingDBandDIssue2:

AggregatingDBandDC?Situation:DB/DCplancan’tpassgatewaysDB/DCplanfailsMinimumAllocationGateway1/3of38%>2.5%2.5%<7.5%DB/DCplanfailsPrimarilyDBGatewayDBgroupcouldn’tpassNCT,sowon’thave50%NHCEsDB/DCplanfailsBroadlyAvailableSeparatePlansifDBgroupcouldpasstheNCT,therewouldbenoreasontoaggregate31Issue2:

AggregatingDBandDIssue2:

AggregatingDBandDC?Situation:DB/DCplancan’tpassgatewaysConsiderimplicationsunderproposedcashbalanceregulationsifDBplanconvertedtoacashbalanceplanwith6%/3%allocationsasinPS,butprovidedDB/CBchoicetoallinDBplanprovided“greaterof”formulatoallinDBplanprovidedCBwithfrozenDBminimumtoallinDBplan32Issue2:

AggregatingDBandDIssue3:

Aggregatingvs.Merger?Situation:MergeroftargetplanandMPPSafeharbortargetplanparticipationwasfrozenseveralyearsagoAllemployeeshiredsincethenparticipateinasafeharbormoneypurchaseplanTosavemoney,trustswerecombined,plansmergedTargetandMPPtestedbyrestructuring…untilcross-testingregulationsnowissupposedtopassGatewayswithoutrestructure

33Issue3:

Aggregatingvs.MergIssue4:

DifferentplanyearsinABT?Situation:Oneemployee,twoplanyearsNotreallyanaggregationissueEmployeebenefitsinacalendaryear401(k)planandina4/1planyearMPPplanEmployeeisHCEfor2003testingofthe401(k)planNotestingdonefortheMPPsincenoHCEsbenefitwouldhavebeenNHCEforplanyearending3/31/2003Averagebenefittestrequiredfor401(k)plan

34Issue4:

DifferentplanyearsDeterminingHCEs

35DeterminingHCEs35Issue1:

AcquiringHCEs?Situation:NewmemberofcontrolledgroupBuyCoacquiresNewCoassetsonNovember1,2002NewCoemployeesimmediatelyjoinBuyCo’sDBplanAspartoftransaction,certainseniorNewCoexecswilllosetheirjobsinearly2003CantheBuyCoDBplanprovidetheexecswithannualnormalretirementpensionsequal$16,000?36Issue1:

AcquiringHCEs?SituaIssue2:

Collectingtherightpay?Situation:AveragebenefitstestwithdifferentplanyearsPlanAisbeingtestedforits12/31/2002planyearPlanB(10/31pye)isalsointhetestinggroupHCEsfortheABTareeitherPlanA(12/31/2002)orPlanB(10/31/2002)HCEsDoesPlanAkeeptrackoffiscal10/31employeecompensation?OrPlanB12/31?37Issue2:

CollectingtherightIssue3:

Whenaresnapshotsnotenough?Situation:Requiredtocross-testadefinedcontributionplanMinimumallocationgatewayrequireseachNHCEtoreceiveanallocationatleast1/3ofthelargestHCEallocationThehighestallocationrateislikelytobelongtoanHCEwithpartialyearofpaySnapshottestingidentifiesHCEsonthesnapshotdate,socouldmissHCEswholeavemid-year38Issue3:

WhenaresnapshotsnDeterminingMostValuableAccrualRates

39DeterminingMostValuableAccrIssue1:

Don’tforgettoclosewindowsSituation:PlanoffersanearlyretirementwindowWindowbenefitsarereflectedinmostvaluableaccrualratesinfirstyearitisopenInMVARiteration,includewindowbenefitsatfirstage,butexcludethematagesafterwindowcloses40Issue1:

Don’tforgettoclosIssue2:

Whatisaverageannualcomp?Situation:Short-serviceemployeesTheregulationsstatethattheaveragingperiodmustconsistofthreeormoreyears,butneednotbelongerthantheemployee’speriodofemploymentTheyhavelessthanafullaveragingperiodofcompensationCantherestoftheaveragingperiodbefilledwithzerocompensation?41Issue2:

WhatisaverageannuIssue3:

ImprovingtherategroupingSituation:Notallrategroupspass410(b)Mostoften,rategrouprangesaredeterminedmechanically,startingat0%Frequently,betterresultsarehadbyadjustingthestartingpointTheHCErateswithinarangecannotbesignificantlyhigherthanthenHCErates42Issue3:

ImprovingtherategOddsandEnds

43OddsandEnds43Issue1:

UnionmembershipSituation:Unionandnon-unionmemberscoveredbysameplanEmployerbelievesentireplaniscollectivelybargainedIdentityofunionmembersnotalwaysclearActuaryhasentirecensus,butnounionindicatornorplanyearcompensation44Issue1:

UnionmembershipSituIssue2:

Non-residentaliensSituation:USandBritishemployeescoveredbysameplanBritsaretotallyexcludableiftheyhavenoUSsourceincomeCanprovideseparatediscriminatorybenefitstructurefortheBritsMustcomplywithapplicableUKtaxandbenefitsrules,ifapplicable45Issue2:

Non-residentaliensSProblemsandIssueswithNondiscriminationRules-CaseStudiesMarch18,2003Toprotecttheconfidentialandproprietaryinformationincludedinthismaterial,itmaynotbedisclosedorprovidedtoanythirdpartieswithouttheapprovalofyourorganizationandHewittAssociatesLLC46ProblemsandIssueswithNondiAgendaControlledGroupIssuesPlanAggregationIssuesDeterminationofHCEsDeterminationofMostValuableAccrualRates47AgendaControlledGroupIssues2ControlledGroupIssues

48ControlledGroupIssues3GroupstoIncludeWhoknowsthegroup?Arethereleasedemployees?Arethereaffiliatedservicegrouprelations?Arethereacquisitions?49GroupstoIncludeWhoknowstheIssue1:

Whoknowsthecontrolledgroup?EssentialtoinvolvelegalcounselHRcontactsmaynotknowwhetherornottheyhaveaparentorsubpercentageofownershipiftheydothatforeignparentownsotherU.S.companieswhetherbusinessrelationshipsconstituteanaffiliatedservicegrouporleasingarrangementRequiresinterpretationsofcorporatelawWEDONOTPRACTICELAW50Issue1:

WhoknowsthecontroIssue1:

Whoknowsthecontrolledgroup?ABCDEFGHKJIUSAUSAUSAUSAUSAUSAUSAUSAFranceFranceCanadaAcquires80%100%80%40%40%50%50%-acquiredprioryear85%0%-Leasinggrp0%-MgtSvcsonly0%-SvcsonlyExercise:Identifycontrolledgroupsinyears0,1,and2,assumingacquisitionsadmittedtocontrolledgroupatendoftransitionperiod51Issue1:

WhoknowsthecontrolIssue1:

Whoknowsthecontrolledgroup?Situation:CompanywithforeignownershipFamily,Inc.familycompanyownerretiringSellstoNewDad,Inc.,alargeEuropeancompanysochildrendon’ttakeoverFamily,Inc.checksandfindsotherUScompaniesownedbyNewDadtoincludeintestingLaterFamily,Inc.findsthatNewDad’sCanadiansubsidiaryalsoownsadditionalUSentitiestoincludeintesting,butwondersaboutfindingothers52Issue1:

WhoknowsthecontroIssue1:

Whoknowsthecontrolledgroup?Situation:HoldingcompanyAllAloneCompanyisacquiredbyaholdingcompany(HoldMyHandButPretendI’mNotHere,Inc.)AllAloneishappyitstillgetstomaintainitsownplans,payroll,doitsownfilingsBut,nowAllAlonemustfigureoutwhoelseHoldMyHandownsandhowtocollectdatafromwhoinordertodoitstesting53Issue1:

WhoknowsthecontroIssue2:

Arethereleasedemployees?LeasingarrangementsConsideredleasedemployeeifprovideservicespursuanttoanagreementservicesperformedsubstantiallyfulltimeforatleastayearservicesprovidedunderdirectionofrecipientemployernotcoveredbyasafeharborretirementplan54Issue2:

ArethereleasedempIssue2:

Arethereleasedemployees?Situation:TypicalleasingarrangementsInNDTplanningmeeting,WhoMe,Lease?Co.statestheyhaveonly3leasedemployeesjokespassingasmallgroupinthehallthatwehadjustpassedalltheirleasedemployeesAfterreviewingaleasedemployeechecklist,WhoMeLeasecallsbackwith200leasedemployeessincethecontrolledgrouphadonly2000NHCEsbefore,the75%ratiotestchangesto68%andnowrequiresanaveragebenefitpercentagetest55Issue2:

ArethereleasedempIssue2:

Arethereleasedemployees?Situation:CompanyemployeesworkatJVDivisionJisownedbyBiggerFishCompanyBiggerFishCompanyspinsoffDivisionJtoformajointventureDivisionJemployeesbecomeemployeesoftheJVBiggerFishCompanyalsohasafewemployeeswhoremainBigFish,butworkattheJVtheseemployeesaretestedasemployeesbyBiggerFish,butalsomustbeincludedasleasedemployeesbytheJV56Issue2:

ArethereleasedempIssue2:

Arethereleasedemployees?Situation:CompanyacquiresemployeesWeDoEverything,Inc.acquirestheofficestaff,theirportionoftheretirementplan,andthewholebuildingoftheWeDon’tDoFloorsCo.TheprofessionalstaffofWeDon’tcontinuestoworkinthebuilding&controltheworkoftheofficestaffWeDoteststheofficestaffasemployeesWeDon’tincludestheofficestaffasleasedaggregatesofficeplanasifitsown57Issue2:

ArethereleasedempIssue3:

Arethereaffiliatedservicegroups?AffiliatedServiceGroupsNoownershipinvolved,basedinpartonregularprovisionofservicesormanagementservicesbyaserviceorganizationDon’tforgetaffiliatedservicegroupsofaffiliatedservicegroupsIRSwillruleviaForm5300filingwhetheranaffiliatedservicegrouprelationshipexists58Issue3:

ArethereaffiliatedIssue3:

Arethereaffiliatedservicegroups?Situation:Companyacquiresemployees-2WeDoWindows,Inc.acquirestheofficestaff,theirportionoftheretirementplan,andthewholebuildingoftheWeDon’tDoWindowsCo.TheprofessionalstaffofWeDon’tcontinuestoworkinthebuilding&controltheworkoftheofficestaffAnaffiliatedservicegrouprelationshipexistsWeDoandWeDon’taretestedasonecontrolledgroup59Issue3:

ArethereaffiliatedIssue3:

Arethereaffiliatedservicegroups?Situation:AttorneysdisagreeWeDoEverything,Inc.nowacquiresWeDoWindows,Inc.TheaffiliatedservicegrouprelationshipiscausingitsplantofailunderthenewcontrolledgroupTheattorneyforWeDoWindowsthinksitshouldpasssincetheyfeeltherelationshipwithWeDon’tDoFloorsshouldalsobeanaffiliatedservicegroupTheattorneyforWeDoEverythingdisagrees60Issue3:

ArethereaffiliatedIssue4:

Whataboutacquisitions?TransitionruleapplicationNotmuchguidance Generallyagreedthetransitionrulecan’tbereliedontoavoidtestingindefinitelyiffrequentM&Asomeattorneyssuggesttestingthecompanyanditsacquisitionasseparatecontrolledgroupsuntiltheendofthetransitionperiodsomesuggesttestingthecompanyonlywithoutitsacquisitionuntiltheendofthetransitionperiodsomeignorethetransitionrule61Issue4:

WhataboutacquisitiIssue4:

Whataboutacquisitions?Situation:SeparatetestingduringtransitionAllTogetherNow,Inc.acquiresNotQuiteTogetherYet,Inc.andinstructsNotQuiteTogethertocontinuetestingasusualuntiltransitionendsNotQuiteTogethertestsitsmultipleemployerplanplanprovidescutstoHCEsAftertransition,AllTogetherNowattorneygetsinvolvedintestinganddeterminesthereisasingleemployer,notmultipleemployers62Issue4:

WhataboutacquisitiGroupstoExcludeAretheremultipleemployerplans?Aretherejointventures?Whataboutthetax-exemptexclusion?63GroupstoExcludeAretheremulIssue1:

Anymultipleemployerplans?MultipleemployerplansEachemployeradoptingamultipleemployerplanmusttestseparatelyfromotheradoptingemployersHowever,failingresultsforoneadoptingemployeraffectthequalifiedstatusofallintheplan64Issue1:

AnymultipleemployeIssue1:

Anymultipleemployerplans?Situation:PlanhasadoptingemployersWildBlueCompanysponsorsaprofitsharingplanandLimpaLot,Inc.andComeFlyWithMe,Inc.alsochoosetoadopttheplan.ComeFlyusesthe“top20%”electionforHCEs.LimpaLotdissolves,butComeFlyhiresmanyoftheLimpaLotemployees.ComeFlyincludesitsnewemployeesfortesting,butignoresthemforHCEdetermination.65Issue1:

AnymultipleemployeIssue1:

Anymultipleemployerplans?Situation:ContinuesbenefitsaftersaleWildBlueCompanysellsitsFlapYourWingsdivision,butallowstheemployeestocontinueinitsplansforoneyear.ThenewFlapYourWingsCompanybecomesanotheradoptingemployerfortheyear.TheWildBlueCompanywilltestincludingFlapYourWingsemployees/benefitsuptosaleFlapYourWingswilldoitsowntestingoftheplanfromthesaledateuntilbenefitscease66Issue1:

AnymultipleemployeIssue2:

WhathappenswithJVs?JointVenturesWhenthereisnotan80%ownershiprelationshipforajointventure,eachgroupbecomesaseparatecontrolledgroupAsstatedpreviously,theremaybesomeemployeesincludedintestingforboth,asaleasedemployeeinoneentity67Issue2:

WhathappenswithJVIssue2:

WhathappenswithJVs?Situation:ContinuesbenefitsafterJVYouCompleteMe,Inc.andDitto,Inc.eachspinoffdivisionstoformajointventure.TheemployeesfromeachcompanyremainintheirrespectiveplansandtheJVbecomesanadoptingemployerofbothplans.NeitherplanpassestestingwithrespecttotheJV68Issue2:

WhathappenswithJVIssue3:

Whatabouttax-exemptexclusions?Tax-exemptexclusionOnlyallowedfor401(k)plantestingRequiresnotax-exemptemployeesbenefitingin401(k)Requires95%coverageofnontax-exemptemployeesinthe401(k)planIfrequirementsmet,401(k)plantestingfor410(b)canexcludetax-exemptsfromthecontrolledgroup69Issue3:

Whatabouttax-exempIssue3:

Whatabouttax-exemptexclusions?Situation:ForProfitshaveown401(k)plansYouKeepItCompanyis“notforprofit”andacquiresWe’llTakeIt,Corp.,a“forprofit”companySmallerWe’llTakeIthasfourdivisions,eachwithitsown401(k)planEvenaggregated,401(k)plansfail410(b)nootheremployeeslefttooffer401(k)toimproveresultsNodivision’s401(k)plancovers95%ofWe’llTakeItemployeestoexcludetax-exempts70Issue3:

Whatabouttax-exempWhentoAggregatePlans

71WhentoAggregatePlans26Issue1:

Can’tPassNCT?Situation:TwoplanswithdifferentBRFsCompanyhastwoplanswithidenticalformulasOneplanisdiscriminatoryalone,sodesirestoaggregatewithsecondplanBRFsaredifferent,butthesecondplan’sBRFsaremoregenerous,socanbeaggregatedwithfirstplan’sBRFstopassFrequentrequeststoimprovefirstplanbenefitsandBRFsaremonitoredtoensuretestingcompliance72Issue1:

Can’tPassNCT?SituaIssue1:

Can’tPassNCT?Situation:PlansamendedtobeidenticalWeAreAllIndividuals,Inc.hasadiscriminatoryplanTheplanaggregateswithasecondplanFirstplanrequirescutstoHCEstoensurepassingandcaneliminate401(a)(4)cutsifaggregatedplanissafeharborFirstplanwon’tgiveupaccrualsforterminations,andcompanyinsistsonlast-dayforsecondplan73Issue1:

Can’tPassNCT?SituaIssue2:

AggregatingtoAvoidABT?Situation:74Issue2:

AggregatingtoAvoidIssue2:

AggregatingDBandDC?Situation:DB/DCplancan’tpassgatewaysPSplanforOverTheredivisionemployeesanddefinedbenefitplanforOverHeredivisionOverTherePSprovides6%torankandfile,3%toexecutives(rankandfileincludessomeHCEs)OverHereisadiscriminatorygroupprovidingdefinedbenefitplanwith1%ofpayformulaHighestHCEallocationisaDBparticipantwith38%AverageNHCErateforDBis2.5%75Issue2:

AggregatingDBandDIssue2:

AggregatingDBandDC?Situation:DB/DCplancan’tpassgatewaysDB/DCplanfailsMinimumAllocationGateway1/3of38%>2.5%2.5%<7.5%DB/DCplanfailsPrimarilyDBGatewayDBgroupcouldn’tpassNCT,sowon’thave50%NHCEsDB/DCplanfailsBroadlyAvailableSeparatePlansifDBgroupcouldpasstheNCT,therewouldbenoreasontoaggregate76Issue2:

AggregatingDBandDIssue2:

AggregatingDBandDC?Situation:DB/DCplancan’tpassgatewaysConsiderimplicationsunderproposedcashbalanceregulationsifDBplanconvertedtoacashbalanceplanwith6%/3%alloc