Failed Coverage Test

[Guest grazetti]

May an employer who has failed coverage testing retroactively amend the plan to exclude highly compensated employees from receiving a contribution?

[Tom Poje]

no.

if calendar year plan you have a few days to put in a corrective amendment to provide a meaningful benefit to enough people to pass.

[Guest grazetti]

This is a 6/30 plan year end.

I thought that you could retroactively amend a plan for a failed coverage test up until 9 1/2 months after YE. I don't know whether this is an allowable correction. I didn't think the IRS would have a problem with it, since it is not discriminating against the NHCEs.

[rcline46]

A corrective amendment must ADD benefits. The HCE has already 'accrued' the right to a benefit. the -11(g) amendment must be non-discriminatory, and must INCREASE benefits.

[stephen]

Thus, it would be ok to allocate additional amounts to the NHCEs by either by a flat dollar amount or comp. to comp..

[Blinky the 3-eyed Fish]

Sure those allocations would be okay, but would probably be far more costly than necessary. You instead could give $x to EE1 and $y to EE15, whatever you need to give to one or more NHCE's to pass the test.

Grazetti, be wary that the document already has fail-safe language in it that mandates to whom you provide contributions to.