Exclude eligible employees & failing minimum coverage

[mariemonroe]

Temporary staffing agency sponsors 401(k) plan beginning in 1994.

401(k) Plan provides that employees with 1000 hours are eligible to participate in plan.

Agency hires lots of "Temps".

Sometimes Temps have more than 1000 hours in a single year.

Agency ignores Temps for purposes of the Plan (i.e. Temps never enter Plan and Temps are ignored for minimum coverage testing purposes).

New recordkeeper discovers that Temps should be entering plan and should be included in minimum coverage testing. Also discovers that plan fails minimum coverage if Temps are included in the calculation.

My question: If this one problem or two problems?

I know how to fix the problem of excluding otherwise eligible employees under EPCRS (make up to them with QNEC).

But I am unsure whether I also need to correct for what is likely several years of minimum coverage testing failures.

Do we retest for minimum coverage after we make a QNEC to exlcuded Temps?

Any advice?

[Mike Preston]

Logic (well, at least MY logic) dictates that this is one problem. By curing the issue with a QNEC, you theoretically have the right to now claim that these individuals "count" for coverage purposes. You have a coverage failure only if AFTER you consider these people as being covered do you somehow fail coverage. You would need additional facts to convince that is even possible (like the fact that there are two groups of temps, one of which is theoretically eligible but previously excluded and one of which is not theoretically eligible - and then when correcting the failure by giving a QNEC to that group which was theoretically eligible you nonetheless find that the plan fails coverage).