What special rules apply in 410(b) testing for union employees?

There are several special rules that apply to union employees when doing coverage testing under IRC 410(b).  The most significant of these rules is that if a plan covers only union employees, the plan is deemed to pass coverage testing.  See IRC 1.410(b)-2.

If a plan does not cover union employees but there are union employees in the controlled group, the union employees are excludable when doing a coverage test for the non-union plan.  This means that the union employees are excluded from both the numerator and denominator when doing the IRC 410(b) coverage test for the non-union employees.

If a plan covers both union and non-union employees, the portion covering union employees is mandatorily disaggregated from the portion of the plan covering non-union employees.  If there are multiple union plans due to multiple collective bargaining agreements, each union plan is mandatorily disaggregated.  See IRC 1.410(b)-7(c)(4)(ii)(B).

Sometimes an employee’s status changes from union to non-union (or vice versa) mid-year.  If an employee changes status mid-year, he is treated as a union employee for the hours he was a union employee and a non-union employee for the hours he was non-union employee.  See IRC 1.410(b)-6(d)(2)(i).  In the alternative, an employer can choose to treat employees with status changes as union or non-union for the entire year on a uniform basis as long as there is no discriminatory effect.  See IRC 1.410(b)-7(c)(4)(i)(C).