Coverage Failure

[justatester]

I have two different situations I am currently working with.

1) Our client is a Temp Agency. They have about 30 "staff" employees that are allowed to participate in the plan. (of the 30 staff employees 5 are HCEs-2 of which are owners that are excluded by plan design) They have 1300 "non staff" employees (they are the folks that go temp at other employers). They exclude these people from the plan. We were able to work down the number to 42 people who would have otherwise been eligible had they not been in an excluded category. My coverage ratio is 65% but unfortunately they do not pass average benefits. I am stuck on how to advise how to fix. Can they make the 3 participating HCEs distribute their money due to the coverage failure? I know they can make a qnec or allow these non staff into the plan to fix it, but that would be very costly. Any other ways to correct?

2) Different employer: The plan has multiple divisions. 2 of the groups do not provided for a match. Of course these 2 groups have most of the NHCEs. On top of the coverage issues, the groups that have a match, they have multiple matching formulas. The most generous formula is the one most of the HCEs receive. They client wants to retroactively amend their plan so that the HCEs do not receive a match for 2008. Is this possible?

Any help or guidance would be greatly appreciated!

[Laura Harrington]

1) No, you cannot correct a coverage failure by taking away a benefit that has already accrued, even if you want to take it away from the HCEs.

The only way to correct a coverage failure is to amend the plan retroactively so more NHCEs benefit or to increase the contributions to the NHCEs so that the average benefit percentage test passes.

2) No. Even if the coverage test is failing and/or each rate of match is not available on a nondiscriminatory basis, you cannot correct a coverage or a nondiscrimination failure by taking away a benefit that has already accrued, not even from the HCEs.

[justatester]

That is what I thought, but the client asked so I thought I would just confirm.

[justatester]

Ok....

So my plan that is a Temp Agency, needs to amend to allow some of the non staff people in. Do they need to let all non staff or can the allow just some? Basically, they need 2 more people to benefit and then they pass coverage.

[BG5150]

Does the document have any language in it describing how to correct a coverage failure?

[david rigby]

I realize the employee counts in (1) of original post are approximate, but are you sure about your 65% ratio? The numbers posted may lead to a different conclusion.