bp parv

I'm not clear on your question--are you asking whether the part time employees who have not met the 1000 hours to meet the one year of service requirement may be excluded from 410(b) testing? Yes, they may be excluded no matter how you measure a year of service (elpased time or hours of service).

The eligibility service requirement for full and part time employees is the same--one year of service. One year of service, however, is calculated using different methods that are both allowed under the DOL Regulations. Nevertheless, I do not view this as different eligibility criteria for full time versus part time. 410(b) is always "invoked" even if full and part time employees have the same eligibility criteria.

Depending on the termination process, the excess assets can fluctuate during the wind-up period. So, before accelerating the termination date solely because of overfunding concerns, I'd want the actuary to quantify how much additional funding surplus is actually expected to arise between July and December 2026.

This would not be a brother-sister controlled group. The lowest identical ownership of H/W between the two companies is 45%.

Can they? Sure, it always possible. Will they (in particular the IRS)? My opinion (and my opinion only) is no: Given that the Treasury Regulations do not directly address the PE issue and that PE firms have historically taken the reasonable stance that they are not a "trade or business" for Section 414 purposes without any pushback from the IRS (that I am aware of), I think the IRS would currently be reluctant to take on this issue. The IRS is quite aware of which law firms represent PE and also understands that taking such a stance could create major headaches for the PE sector. Given the stakes, PE would fight very hard on this issue. So, from the IRS' point of view (in my opinion) it would not be a winning strategy without clear Treasury Regulations.

Peter's point is correct. The 100% of workforce is not really the issue that the IRS would focus on. Rather, the issue is whether this individual truly qualifies as "management or highly compensated employee." Keep in mind, however, that a 457(b) plan sponsored by a tax-exempt entity is not required to be a top-hat plan, whereas the 457(f) plan does.

I second and third what has been stated above. At least to me, this seems like a prohibited mid-year amendment under IRS Notice 2016-16. Notice is not your issue. Your issue is that you cannot make this amendment mid-year.

Coleboy1: There is much to unpack from your fact pattern. I am assuming that the 300 service providers were common law employees of the client and also participating in the retirement plan. I further assume that the new leasing arrangement is a PEO type arrangement where the leasing agency becoming the employer of record (handling payroll, etc...) while the client still retains discretion over how and when these 300 individuals perform their services. I also assume the 300 individuals will not be covered under its current retirement plan. To answer your question: The "moving" of the 300 participants deserves a very hard look to determine if a partial plan termination has been triggered. As you know, the determination of a partial plan termination is based on facts and circumstances. Case law, of course, is one very important factor and so is the prevailing view of the IRS. I assume this issue matters because the plan has a vesting schedule. But your partial plan termination issue is just the tip of the iceberg. If these 300 individuals are not covered under the client's plan, will they be covered under the PEO's plan? Are the terms of the PEO plan similar to the client's plan? Remember that no matter what you may label these 300 service providers, they would likely still be "common law employees" of the client and still may lay claim to be covered under the client's plan (as opposed to the PEO plan). The plan's exclusion is for "leased employees", which is a very specific definition under 414(n). Look at that definition. Would these 300 be excluded under that definition right now? And assuming they can be excluded for 410(a) purposes, they would still be included for 410(b) coverage purposes unless there was an exclusion there (e.g., age 21/year of service, union, etc...)

PensionPro: I don't think Rev. Proc. 2021-30 ("EPCRS") provides specific guidance on this situation, but one of the guiding principles of EPCRS is to place the participant and the plan(s) in the place they would have been absent the failure. Using that logic, the participant's deferrals (plus earnings/losses) for the period he/she was in the A plan (but should have been in the B plan) are transferred over to the B plan. In conjunction with the transfer of assets, I would then draft an SCP memorandum to file describing the failure, and the above correction. I would not propose the various retroactive amendments you are suggesting (although they are technically correct) simply because in my experience providing legal advice to TPAs and dealing with the IRS, they would very likely view this as a "no harm, no foul" situation. Of course, this assumes that the plan documents are truly the "same" (i.e., identical) and that other than this operational failure, have been operated accordingly.