Amendment to pass 410(b)

[jquazza]

A sponsor offers a 401(k) plan with matching provisions. The match has a last day and 1000 hours allocation requirement. The plan fails the ratio percentage test and the average benefit test. I am trying to amend the plan to pass coverage. The participants I will include in my amendment need to receive a "substantial benefit" from the plan in order to be counted. Out of all the employees who were excluded due to the last day or hour requirement, only 3 deferred. I need to bring in 9 to pass coverage. Do I have to contribute a QNEC for them? What are my options?

[Brian Gallagher]

Those nine people do not have to defer, they just have to be eligible to defer and receive match.

Right?

[AndyH]

Right, you may not have a coverage failure. But if you do, yes, you need to give them QNECs. See 1.401(a)(4)-11(g).

[jquazza]

The way documents are drafted these days, you can pretty much pick and choose who will be added to your benefiting population. Considering an amendment to add folks in the matching group who did not defer and consider them benefiting would violate Treas-Reg 1.401(a)(4)-11(g)(4). The amendment must have substance (whatever that is, is $10 subtancial for anybody's retirement?) But basically, I gathered that we cannot use a retroactive amentment to include terminated participants and not provide them with any benefits. My guess is I will have to at least provide a QNEC equal to the ACP average for the NHCEs. Now, that's only when we have to increase the covered population by amendment. If the document had a "fail/safe" provision to pass coverage automatically, it would not matter whether they deferred or not.

Andy do you concur?

[AndyH]

I think you need to read 11(g) further. You do not have any options. Read 11(g)(3)(vii). You MUST provide a QNEC based upon the average ADP and/or ACP for the NHCEs if you fail coverage for the k or m components. And a QNEC is fully vested of course.

But as Brian indicated, it is not entirely clear that what you are describing is a coverage failure.

[jquazza]

Thanks.