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I recently took over administration of a Cash Balance Plan that was effective in 2016.  When I reviewed the document I was a little concerned that under the Eligibility Section there was an exclusion for anyone other than Direct Owners, Spouses of Direct Owners and other HCE's.  I just assumed that the document was written in error or that they purposely did this to be able to add back in sufficient NHCE's to pass 401(a)(26) and 410(b).

Based on the printouts in the Actuarial Valuation Reports the Valuation Reports were run through Relius.  The 410(b) and 401(a)(4) tests all show "Pass" for 2016 and 2017.  However, when I reviewed the census information it appears that 8 employees out of 12 were coded as ineligible.  All 12 met the eligibility requirement of 1 YOS and age 21.  It is my understanding that the 8 "ineligible" participants should have been coded as Active with a $0 benefit.

Am I totally off base?  I would love to have some feedback before I go to a new client and say there is an issue with their prior years.

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I'm not a user of the software so I can't opine on its coding to produce proper results, but the simple math is that you have 12 non-excludable employees and 4 who benefit in the cash balance plan, for a participation rate of 33 1/3% which as you note fails minimum participation.

It could be that there were 10 non-excludable employees at the start, so 401(a)(26) passed, but then wasn't looked at again, or the intent was to amend under 11(g) to bring in an NHCE or two as needed, or maybe there is already a failsafe provision already in the plan?

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