What special rules apply when performing the ADP/ACP test for union 401(k) plans?

If a 401(k) plan covers both union and non-union employees, the union and non-union employees must be mandatorily disaggregated for purposes of ADP and ACP testing.  This means that there is a separate ADP test and separate ACP test for the non-union group from the union group. This mandatory disaggregation means that it is possible for the non-union portion of the plan to be a safe harbor 401(k)plan and the union portion of the 401(k) plan to be something different than a safe harbor 401(k) plan.

A union plan must pass the ADP test or all elective deferrals for the year will be considered taxable income. See IRC 1.401(k)-1(a)(5).

If an employer has multiple collective bargaining agreements, an employer may elect to test all union employees as if they are covered by a single collective bargaining agreement. See IRC 1.401(k)-1(g)(11)(ii)(B). This may simplify ADP testing by requiring a single union ADP test instead of one for each collective bargaining agreements.

Union plans are not deemed to pass the ADP test, but union plans are deemed to satisfy the ACP test. See IRC 1.401(m)-1(a)(3).