I have a client that has a 401 K and matches 100% up to a 6% deferral. They have started a new company that is owned 85% by them and 15% outside investors. They want to offer a 50% match to 6% for those employees with a max contribution amount of $1,200. Can they do this? My logic says that we have a control group and the two plans must match and the testing must be done as if it was one plan.

I would love some help here. Thanks.

Long as both plan's pass coverage taking into the account the employees NOT covered by the Plan, you can run two separate ADP tests.

If you fail, you can still have two sepate match formulas, however, you'll need to run one ACP test, so you'll probably have troubles there.

Thank you. I think with the limited number of participants in plan #2 we will fail the ACP tests. I am advising the client to set the plans identical.

Thanks again for your help.

No offense, but I don't think you are informed enough of the rules to make such a recommendation. A person more familiar with what austin is saying should be involved.

Of course that only applies if each match formula would cover a nondiscriminatory classification of employees...and, if that is true, you would likely pass the Avg Bft Pct Test and each plan could test on its own