Coverage Test

[Guest 401kbee]

Have a client that has a restrictive eligiblity requirement for the match.

Only 1 (approx. 270 contributing) out of 7 (325 contributing) divisions is eligible to receive the match. They do have hour and last day requirements as well.

As a result, they failed coverage. 410(b) for the match.

Plan has lousy participation, and a very high eligiblity population. 900 accounts w/ balances, approx. 6000 eligible & only 595 participating.

To pass coverage it was discovered that plan needed to bring in 677 newly eligible employees.

-Will retroactively making everyone eligible for the match reflect the plan to be 100% benefiting?

-QNEC only made to those participants that contributed (325)

-does a QNEC still need to be funded for the remaining 352 (677-325) since now everyone is now considered benefiting

Am I way off base? I am by no means a coverage expert. HELP

[Lou S.]

If you have a coverage failure you have to give a meaningful benefit to the participants you bring in to pass test for them to be considered benefiting for 401(a)(4) and 410(b). That is you can't just retroatively say OK now everyone is eligible for the match so we have 100% coverage, they acutally have to receive an allocation to be concidered benefiting.

[buckaroo]

You did not say what options you have as far as coverage testing. Are you restricted to the ratio test or can you use the average benefits test? If you can use ABT, have you? Are the results as bad? Are you passing the non-discrim classification portion and failing the ABPT? What does the document say about correction to coverage testing? is their fail safe language?

Depending on the the answers to the above, you may be able to utilize other correction methods to fix the issue.