410(b) Failure

[mming]

A new comparability PS plan fails 410(B) for calendar 2001 due to several participants terminating employment. The terminated participants all had over 1,000 hrs. and were all terminated on the same day. Plan has last day requirement for allocation. The document does not contain any failsafe provisions. Only a portion of the terminated participants would have to get an allocation for the plan to pass 410(B). Since they were all terminated the same day, with presumably the same number of hrs., is there a way to avoid giving allocations to all of them?

Also, for new participants entering mid-year, the doc's definition of compensation says to only recognize comp from DOP. I'm pretty sure it's OK to also use partial comps for cross-testing but would appreciate verificiation of this. Are there any regs that require the use of total comp for the year in such a situation?

Thanks in advance for all help.

[Mike Preston]

Your amendment to cure the 410(B) failure is governed by 1.401(a)(4)-11(g). It is my understanding that you can craft your amendment any way you want, as long as it meets the rules therein. The most important rule is that it must have economic substance. This generally means that you can't provide benefits solely to those who have no vesting percentage. But you can certainly state that the benefits being provided pursuant to the amendment are specific to named individuals. So the answer to your first question is yes.

There are no regs that require the use of total comp in the second situation because there are regs that specifically allow you to use comp from date of entry when testing under the annual method, unless the plan has some strange requirement that limits your options. AndyH has put a great message up which goes through the regs chapter and verse on this issue in another thread. Trust him! Here is a link: http://benefitslink.com/boards/index.php?showtopic=44931

[Tom Poje]

you didn't provide the numbers, but when you say that you fail 410(B) and several ees terminated on the same day, a bell goes off in my head that says you might have a partial termination as well. obviously it can depend on facts and circumstances, but the fact of termination "all on the same day" sounds like a close of a division or something. as Mike pointed out, any amendment must have substance, so these ees might be 100 vested at this point in the game.