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410b Failure... huh?


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This is a vanilla PSP plan.  Here is what I have:

  • June 30 FYE
  • Integrated
  • 1,000 hours and last day requirement
  • 4 participants

One participant is throwing a wrench:

  • Hired 1/1/2020
  • 1st year of service 1/1/20 ~ 12/31/2020, worked 1,000 hours
  • Enters the plan on the next entry date (semi annual) - 1/1/2021
  • Received a 6/30/2021 contribution based on his 1/2 year salary

Here is my problem:

  • He terminated 2/17/2022
  • For 6/30/2022 year end he has 1,000 hours but was not employed on the last day of the plan year

He is the reason for the 410b failure.  He does not meet the continuing eligibility requirement rule.  Why do I need to include him?

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Because he's not excludable under the coverage and nondiscrimination regulations, I suppose.

But seriously, though - Does your plan allow 410(b) to be passed via the average benefits test instead of the ratio percentage test?  I'm getting the vibe that you've got 2/3 NHCEs against 1 HCE. Although that's less than 70%, you could potentially be okay perhaps with a cross-tested rate group.

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Possibly.  But your plan document can't have any overriding failsafe language, where if you end up less than 70% then the terminee automatically gets swept in for a contribution.

And it's not that everyone's in their own group, but just you would use the amounts the "normal allocation formula" (integrated) would give everyone, and do the cross-testing from those.

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