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-11(g) corrective amendment

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The regulations for corrective amendments (1.401(a)(4)-11(g)) provide for special rules for 401(k) plans; specifically, they instruct that when a plan fails coverage testing under 410(b) and corrects by corrective amendment, the contribution must be a QNEC. Anyone have any idea if it has to be a QNEC or a regular contribution if you are correcting for failure to satisfy benefits testing under 401(a)(4)?

Essentially, a client is contributing an additional profit sharing contribution to NHCEs in the Plan after the client failed benefits testing (not coverage). The TPA is telling us it has to be a QNEC. I read the regulations to only require a QNEC when failing testing for coverage purposes. Thoughts? Sources? Thanks!

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Not a QNEC. Under the 401(a)(4) regulations, "plan" has special meaning. See the definition in 1.401(a)(4)-12, which refers you to 1.410(b)-7. There you find that the portion of a plan that is a section 401(k) plan and the portion of a plan that is not a section 401(k) plan are treated as separate plans. Similarly for match (401(m) plans).

So when 1.401(a)(4)-11(g)(3)(vii) applies and it used the term "401(k) plan" it means only the deferral portion of a 401(k) profit sharing plan. That subparagraph requires the correction for a 410(b) failure with respect to the plan's deferrals to be done using a QNEC. I see no other section in -11(g) that requires a QNEC.

That being said, are you trying to provide additional "profit sharing" (nonelective) to pass testing but the folks getting the extra PS are terminated non-vested? If so, then you would have an issue with 1.401(a)(4)-11(g)(4) regarding the substance requirement. Is this why they are asking for a fully vest allocation?

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