Assume 2 separate employers, Subsidiary 1 and Subsidiary 2. Sub 1 and Sub 2 are wholly-owed subsidiaries of Parent and, therefore, are members of a controlled group.
Sub 1 and Sub 2 have adopted the same 401(k) plan. Sub 1 has a match, Sub 2 does not.
Sub 2 can't qualify as a SLOB because it has less than 50 employees.
My question is: Is there any way to treat Sub 1 and Sub 2 as separate plans for ADP/ACP testing? Both Sub 1 and Sub 2 can separately pass 410(b).
I'm pretty sure I know the answer is no . . . but it seems like we ought to be able to do this. Here's why: If Sub 2 did not adopt the Plan (i.e., Sub 2 had no plan), Sub 1 -- because Sub 1 can pass 410(b) on its own -- could go merrily on its way. But, because Sub 2 has in fact adopted the Plan and because Sub 2 has poor participation among its eligible employees, the HCEs are Sub 1 are going to cut-back in the amount they can defer. Thus, Sub 1 employees are in effect punished because eligibility under the Plan was extended to Sub 2 employees. File this under "no good deed goes unpunished".
Will appreciate your thoughts.
Thanks.