Too Many Excluded EE's

[Guest Mike Schwing]

A plan excludes hourly paid employees - the company has a total of 9 employees who meet the eligibility requirements - 3 of whom are hourly paid.

The plan is a 401(k) plan and will not pass coverage testing. If my documnet has failsafe language to add participants back - if I add back these hourly employees can I allocate a contibution to them - i.e. a QNEC equal to the average of the other non-highs to the 401(k)?

[MWeddell]

It all depends on what the document says. If it contains the fail safe language, does it first require you to perform average benefit testing? If it fails, does it make all hourly employees eligible for the plan or just enough to pass coverage testing? Does it allocate QNECs to those who were excluded (assuming this is a 401(k) plan, one guesses that's the case)?

If the plan doesn't contain fail-safe contribution language, then you'll probably want to look at the corrective amendment stuff in Treas. Reg. 1.401(a)(4)-11(g).