[Code of Federal Regulations]
[Title 26, Volume 5]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.410(b)-7]

[Page 572-577]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.410(b)-7  Definition of plan and rules governing plan disaggregation 
and aggregation.

    (a) In general. This section provides a definition of ``plan.'' 
First, this section sets forth a definition of plan within the meaning 
of section 401(a) or 403(a). Then certain mandatory disaggregation and 
permissive aggregation rules are applied. The result is the definition 
of plan that applies for purposes of sections 410(b) and 401(a)(4). 
Thus, in general, the term ``plan'' as used in this section initially 
refers to a plan described in section 414(l) and to an annuity plan 
described in section 403(a), and the term ``plan'' as used in other 
sections under these regulations means the plan determined after 
application of this section. Paragraph (b) of this section provides that 
each single

[[Page 573]]

plan under section 414(l) is treated as a single plan for purposes of 
section 410(b). Paragraph (c) of this section describes the rules for 
certain plans that must be treated as comprising two or more separate 
plans, each of which is a single plan subject to section 410(b). 
Paragraph (d) of this section provides a rule permitting an employer to 
aggregate certain separate plans to form a single plan for purposes of 
section 410(b). Paragraph (e) of this section provides rules for 
determining the testing group of plans taken into account in determining 
whether a plan satisfies the average benefit percentage test of Sec. 
1.410(b)-5.
    (b) Separate asset pools are separate plans. Each single plan within 
the meaning of section 414(l) is a separate plan for purposes of section 
410(b). See Sec. 1.414(l)-1(b). For example, if only a portion of the 
assets under a defined benefit plan is available, on an ongoing basis, 
to provide the benefits of certain employees, and the remaining assets 
are available only in certain limited cases to provide such benefits 
(but are available in all cases for the benefit of other employees), 
there are two separate plans. Similarly, the defined contribution 
portion of a plan described in section 414(k) is a separate plan from 
the defined benefit portion of that same plan. A single plan under 
section 414(l) is a single plan for purposes of section 410(b), even 
though the plan comprises separate written documents and separate 
trusts, each of which receives a separate determination letter from the 
Internal Revenue Service. A defined contribution plan does not comprise 
separate plans merely because it includes more than one trust, or merely 
because it provides for separate accounts and permits employees to 
direct the investment of the amounts allocated to their accounts. 
Further, a plan does not comprise separate plans merely because assets 
are separately invested in individual insurance or annuity contracts for 
employees.
    (c) Mandatory disaggregation of certain plans--(1) Section 401(k) 
and 401(m) plans. The portion of a plan that is a section 401(k) plan 
and the portion that is not a section 401(k) plan are treated as 
separate plans for purposes of section 410(b). Similarly, the portion of 
a plan that is a section 401(m) plan and the portion that is not a 
section 401(m) plan are treated as separate plans for purposes of 
section 410(b). Thus, a plan that consists of elective contributions 
under a section 401(k) plan, employee and matching contributions under a 
section 401(m) plan, and contributions other than elective, employee, or 
matching contributions is treated as three separate plans for purposes 
of section 410(b). In addition, the portion of a plan that consists of 
contributions described in Sec. 1.401(k)-1(b)(4)(iv) (i.e., 
contributions that fail to satisfy the allocation or compensation 
requirements applicable to elective contributions and are therefore 
required to be tested separately) and the portion of the plan that does 
not consist of such contributions are treated as separate plans for 
purposes of section 410(b). Similarly, the portion of a plan that 
consists of contributions described in Sec. 1.410(m)-1(b)(4)(ii) (i.e., 
matching contributions that fail to satisfy the allocation and other 
requirements applicable to matching contributions and are therefore 
required to be tested separately) and the portion of the plan that does 
not consist of such contributions are treated as separate plans for 
purposes of section 410(b).
    (2) ESOPs and non-ESOPs. The portion of a plan that is an ESOP and 
the portion of the plan that is not an ESOP are treated as separate 
plans for purposes of section 410(b), except as otherwise permitted 
under Sec. 54.4975-11(e) of this Chapter.
    (3) Plans benefiting otherwise excludable employees. If an employer 
applies section 410(b) separately to the portion of a plan that benefits 
only employees who satisfy age and service conditions under the plan 
that are lower than the greatest minimum age and service conditions 
permissible under section 410(a), the plan is treated as comprising 
separate plans, one benefiting the employees who have satisfied the 
lower minimum age and service conditions but not the greatest minimum 
age and service conditions permitted under section 410(a) and one 
benefiting employees who have satisfied the greatest minimum age and 
service conditions permitted under section 410(a). See

[[Page 574]]

Sec. 410(b)-6(b)(3)(ii) for rules about testing otherwise excludable 
employees.
    (4) Plans benefiting certain disaggregation populations of 
employees--(i) In general--(A) Single plan must be treated as separate 
plans. If a plan (i.e., a single plan within the meaning of section 
414(l)) benefits employees of more than one disaggregation population, 
the plan must be disaggregated and treated as separate plans, each 
separate plan consisting of the portion of the plan benefiting the 
employees of each disaggregation population. See paragraph (c)(4)(ii) of 
this section for the definition of disaggregation population.
    (B) Benefit accruals or allocations attributable to current status. 
Except as otherwise provided in paragraph (c)(4)(i)(C) of this section, 
in applying the rule of paragraph (c)(4)(i)(A) of this section, the 
portion of the plan benefiting employees of a disaggregation population 
consists of all benefits accrued by, or all allocations made to, 
employees while they were members of the disaggregation population.
    (C) Exceptions for certain benefit accruals--(1) Attribution of 
benefits to first disaggregation population. If employees benefiting 
under a plan change from one disaggregation population to a second 
disaggregation population, benefits they accrue while members of the 
second disaggregation population that are attributable to years of 
service previously credited while the employees were members of the 
first disaggregation population may be treated as provided to them in 
their status as members of the first disaggregation population and thus 
included in the portion of the plan benefiting employees of the first 
disaggregation population. This special treatment is available only if 
it is applied on a consistent basis, if it does not result in 
significant discrimination in favor of highly compensated employees, and 
if the plan provision providing the additional benefits applies on the 
same terms to all similarly-situated employees. For example, if all 
formerly collectively bargained employees accrue additional benefits 
under a plan after becoming noncollectively bargained employees, then 
those benefit increases may be treated as included in the portion of the 
plan benefiting collectively bargained employees if they are 
attributable to years of service credited while the employees were 
collectively bargained (e.g., where the additional benefits result from 
compensation increases that occur while the employees are 
noncollectively bargained or from plan amendments affecting benefits 
earned while collectively bargained that are adopted while the employees 
are noncollectively bargained) and if such treatment does not result in 
significant discrimination in favor of highly compensated employees.
    (2) Attribution of benefits to current disaggregation population. If 
employees benefiting under a plan change from one disaggregation 
population to another disaggregation population, benefits they accrue 
while members of the first disaggregation population may be treated as 
provided to them in their current status and thus included in the 
portion of the plan benefiting employees of the disaggregation 
population of which they are currently members. This special treatment 
is available only if it is applied on a consistent basis and if it does 
not result in significant discrimination in favor of highly compensated 
employees.
    (D) Change in disaggregation populations--(1) Reasonable treatment. 
If, in previous years, the configuration of a plan's disaggregation 
populations differed from their configuration for the current year, for 
purposes of the benefits accrued by, or allocations made to, an employee 
for those years, the employee's status as a member of a current 
disaggregation population for those years must be determined on a 
reasonable basis. A different configuration occurs, for example, if 
disaggregation populations exist for the first time, such as when an 
employer is first treated as operating qualified separate lines of 
business, or if the existing disaggregation populations change, such as 
when an employer redesignates its qualified separate lines of business.
    (2) Example. The following example illustrates the application of 
this paragraph (c)(4)(i)(D).

    Example. (a) Employer X operates Divisions M and N, which are 
treated as qualified separate lines of business for the first time in

[[Page 575]]

1998. Thus, the disaggregation populations of employees of Division M 
and employees of Division N exist for the first time. Since 1981 
Employer X has maintained a defined benefit plan, Plan P, for employees 
of Division M. Plan P provides a normal retirement benefit of one 
percent of average annual compensation for each year of service up to 
25. Employee A has worked for Division M since 1981 and has never worked 
for Division N. Employee B has worked for Division N since 1989 and 
worked for Division M from 1981 to 1988. Employee C has worked in the 
headquarters of Employer X since 1981. For the period 1981 to 1988 
Employee C was credited with years of service under Plan P.
    (b) For purposes of the benefits accrued by Employee A under Plan P 
during years 1981 through 1997, Employee A is reasonably treated as 
having been a member of the Division M disaggregation population for 
those years. For purposes of the benefits accrued by Employee B under 
Plan P during years 1981 through 1988, Employee B is reasonably treated 
as having been a member of the Division M disaggregation population for 
1981 through 1988 and as having changed to the Division N disaggregation 
population for 1989 through 1997. For purposes of the benefits accrued 
by Employee C under Plan P during years 1981 through 1988, Employee C is 
reasonably treated as having been a member of the Division M 
disaggregation population for those years. Moreover, any benefit 
accruals for Employee B and Employee C in years after 1988, that result 
from increases in average annual compensation after 1988 and that are 
attributable to years of service credited for 1981 through 1988, may be 
treated as provided to Employee B and Employee C in their status as 
members of the Division M disaggregation population if the requirements 
of paragraph (c)(4)(i)(C)(1) of this section are otherwise met.

    (ii) Definition of disaggregation population--(A) Plan benefiting 
employees of qualified separate lines of business. If an employer is 
treated as operating qualified separate lines of business for purposes 
of section 410(b) in accordance with Sec. 1.414(r)-1(b), and a plan 
benefits employees of more than one qualified separate line of business, 
the employees of each qualified separate line of business are separate 
disaggregation populations. In this case, the portion of the plan 
benefiting the employees of each qualified separate line of business is 
treated as a separate plan maintained by that qualified separate line of 
business. However, employees of different qualified separate lines of 
business who are benefiting under a plan that is tested under the 
special rule for employer-wide plans in Sec. 1.414(r)-1(c)(2)(ii) for a 
plan year are not separate disaggregation populations merely because 
they are employees of different qualified separate lines of business.
    (B) Plan benefiting collectively bargained employees. If a plan 
benefits both collectively bargained employees and noncollectively 
bargained employees, the collectively bargained employees are one 
disaggregation population and the noncollectively bargained employees 
are another disaggregation population. If the population of collectively 
bargained employees includes employees covered under different 
collective bargaining agreements, the population of employees covered 
under each collective bargaining agreement is also a separate 
disaggregation population.
    (C) Plan maintained by more than one employer. If a plan benefits 
employees of more than one employer, the employees of each employer are 
separate disaggregation populations. In this case, the portion of the 
plan benefiting the employees of each employer is treated as a separate 
plan maintained by that employer, which must satisfy section 410(b) by 
reference only to that employer's employees. However, for purposes of 
this paragraph (c)(4)(ii)(C), if the plan of one employer (or, in the 
case of a plan maintained by more than one employer, the plan provisions 
applicable to the employees of one employer) treats compensation or 
service with another employer as compensation or service with the first 
employer, then the current accruals attributable to that compensation or 
service are treated as provided to an employee of the first employer 
under the plan of the first employer (or the portion of a plan 
maintained by more than one employer benefiting employees of the first 
employer), and the provisions of paragraph (c)(4)(i)(C) of this section 
do not apply to those accruals. Thus, for example, if Plan A maintained 
by Employer X imputes service or compensation for an employee of 
Employer Y, then Plan A is not treated as benefiting the employees of 
more than one employer merely because of this imputation.

[[Page 576]]

    (5) Additional rule for plans benefiting employees of more than one 
qualified separate line of business. If a plan benefiting employees of 
more than one qualified separate line of business satisfies the 
reasonable classification requirement of Sec. 1.410(b)-4(b) before the 
application of paragraph (c)(4) of this section, then any portion of the 
plan that is treated as a separate plan as a result of the application 
of paragraphs (c)(4)(i)(A) and (ii)(A) of this section is deemed to 
satisfy that requirement.
    (d) Permissive aggregation for ratio percentage and 
nondiscriminatory classification tests--(1) In general. Except as 
provided in paragraphs (d)(2) and (d)(3) of this section, for purposes 
of applying the ratio percentage test of Sec. 1.410(b)-2(b)(2) or the 
nondiscriminatory classification test of Sec. 1.410(b)-4, an employer 
may designate two or more separate plans (determined after application 
of paragraph (b) of this section) as a single plan. If an employer 
treats two or more separate plans as a single plan under this paragraph, 
the plans must be treated as a single plan for all purposes under 
sections 401(a)(4) and 410(b).
    (2) Rules of disaggregation. An employer may not aggregate portions 
of a plan that are disaggregated under the rules of paragraph (c) of 
this section. Similarly, an employer may not aggregate two or more 
separate plans that would be disaggregated under the rules of paragraph 
(c) of this section if they were portions of the same plan. In addition, 
an employer may not aggregate an ESOP with another ESOP, except as 
permitted under Sec. 54.4975-11(e) of this Chapter.
    (3) Duplicative aggregation. A plan may not be combined with two or 
more plans to form more than one single plan. Thus, for example, an 
employer that maintains plans A, B, and C may not aggregate plans A and 
B and plans A and C to form two single plans. However, the employer may 
apply the permissive aggregation rules of this paragraph (d) to form any 
one (and only one) of the following combinations: plan ABC, plans AB and 
C, plans AC and B, or plans A and BC.
    (4) Special rule for plans benefiting employees of a qualified 
separate line of business. For purposes of paragraph (d)(1) of this 
section, an employer that is treated as operating qualified separate 
lines of business for purposes of section 410(b) in accordance with 
Sec. 1.414(r)-1(b) is permitted to aggregate the portions of two or 
more plans that benefit employees of the same qualified separate line of 
business (regardless of whether the employer elects to aggregate the 
portions of the same plans that benefit employees of the other qualified 
separate lines of business of the employer), provided that none of the 
plans is tested under the special rule for employer-wide plans in Sec. 
1.414(r)-1 (c)(2)(ii). Thus, the employer is permitted to apply 
paragraph (d)(1) of this section with respect to two or more separate 
plans determined after the application of paragraphs (b) and (c)(4) of 
this section, but may not aggregate a plan that is tested under the 
special rule for employer-wide plans in Sec. 1.414(r)-1(c)(2)(ii) for a 
plan year with any portion of a plan that does not rely on that special 
rule for the plan year. In all other respects, the provisions of this 
paragraph (d) regarding permissive aggregation apply, including (but not 
limited to) the disaggregation rules under paragraph (d)(2) of this 
section (including the mandatory disaggregation rule of paragraph (c)(4) 
of this section), and the prohibition on duplicative aggregation under 
paragraph (d)(3) of this section. This paragraph (d)(4) applies only in 
the case of an employer that is treated as operating qualified separate 
lines of business for purposes of section 410(b) in accordance with 
Sec. 1.414(r)-1(b). See Sec. Sec. l.414(r)-1(c)(2) and 1.414(r)-8 
(separate application of section 410(b) to the employees of a qualified 
separate line of business).
    (5) Same plan year requirement. Two or more plans may not be 
aggregated and treated as a single plan under this paragraph (d) unless 
they have the same plan year.
    (e) Determination of plans in testing group for average benefit 
percentage test--(1) In general. For purposes of applying the average 
benefit percentage test of Sec. 1.410(b)-5 with respect to a plan, all 
plans in the testing group must be taken into account. For this purpose, 
the plans in the testing group are the plan being tested and all other

[[Page 577]]

plans of the employer that could be permissively aggregated with that 
plan under paragraph (d) of this section. Whether two or more plans 
could be permissively aggregated under paragraph (d) of this section is 
determined (i) without regard to the rule in paragraph (d)(4) of this 
section that portions of two or more plans benefiting employees of the 
same line of business may not be aggregated if any of the plans is 
tested under the special rule for employer-wide plans in Sec. 1.414(r)-
1(c)(2)(ii), (ii) without regard to paragraph (d)(5) of this section, 
and (iii) by applying paragraph (d)(2) of this section without regard to 
paragraphs (c)(1) and (c)(2) of this section.
    (2) Examples. The following example illustrates the rules of this 
paragraph (e).

    Example 1. Employer X is treated as operating two qualified separate 
lines of business for purposes of section 410(b) in accordance with 
section 414(r), QSLOB1 and QSLOB2. Employer X must apply the rules in 
Sec. 1.414(r)-8 to determine whether its plans satisfy section 410(b) 
on a qualified-separate-line-of-business basis. Employer X maintains the 
following plans:
    (a) Plan A, the portion of Employer X' s employer-wide section 
401(k) plan that benefits all noncollectively bargained employees of 
QSLOB1,
    (b) Plan B, the portion of Employer X' s employer-wide section 
401(k) plan that benefits all noncollectively bargained employees of 
QSLOB2,
    (c) Plan C, a defined benefit plan that benefits all hourly 
noncollectively bargained employees of QSLOB1,
    (d) Plan D, a defined benefit plan that benefits all collectively 
bargained employees of QSLOB1,
    (e) Plan E, an ESOP that benefits all noncollectively bargained 
employees of QSLOB1,
    (f) Plan F, a profit-sharing plan that benefits all salaried 
noncollectively bargained employees of QSLOB1.


Assume that Plan F does not satisfy the ratio percentage test of Sec. 
1.410(b)-2(b)(2) on a qualified-separate-line-of-business basis, but 
does satisfy the nondiscriminatory classification test of Sec. 
1.410(b)-4 on both an employer-wide and a qualified-separate-line-of-
business basis. Therefore, to satisfy section 410(b), Plan F must 
satisfy the average benefit percentage test of Sec. 1.410(b)-5 on a 
qualifiedseparatelineofbu5ine55 basis. The plans in the testing group 
used to determine whether Plan F satisfies the average benefit 
percentage test of Sec. 1.4 10(b)-5 are Plans A, C, E, and F.
    Example 2. The facts are the same as in Example 1, except that 
Employer X applies the special rule for employer-wide plans in Sec. 
1.414(r)-1(c)(2)(ii) to its employer-wide section 401(k) plan. To 
satisfy section 410(b), Plan F must satisfy the average benefit 
percentage test of Sec. 1.4 10(b)-5. Since paragraph (c)(4) of this 
section no longer applies to Plans A and B, they are treated as a single 
plan (Plan AB). The plans in the testing group used to determine whether 
Plan F satisfies the average benefit percentage test of Sec. 1.4 10(b)-
5 are therefore Plans A, B, C, E, and F. However, the employees of QSLOB 
2 continue to be excludable employees for purposes of determining 
whether Plan F satisfies the average benefit percentage test. See Sec. 
1.410(b)-6(e).

    (f) Section 403(b) plans. In determining whether a plan satisfies 
section 410(b), a plan subject to section 403(b)(12)(A)(i) is 
disregarded. However, in determining whether a plan subject to section 
403(b)(12)(A)(i) satisfied section 410(b), plans that are not subject to 
section 403(b)(12)(A)(i) may be taken into account.

[T.D. 8363, 56 FR 47655, Sept. 19, 1991, as amended by T.D. 8376, 56 FR 
63433, Dec. 4, 1991; T.D. 8363, 57 FR 10819, 10954, Mar. 31, 1992; T.D. 
8487, 58 FR 46843, Sept. 3, 1993; T.D. 8548, 59 FR 32914, June 27, 1994]