410(b) minimum coverage failure - how to retroactively amend if the pl

[Guest Phil L]

The IRS permits/requires a plan to be amended within 9 1/2 months after a PYE in which the coverage requirements of 410(B) are failed. The retroactive amendment must permit the plan to meet the coverage and nondiscrimination requirements under 401(a)(4). If the plan is a 401(k) plan with a match and it also has a profit sharing feature, would you agree with the following conclusions:

1. The retroactive amendment will permit the previously excluded employees to share in all the features of the plan. They will receive profit sharing contributions and this will enable the P-S feature to pass coverage.

2. The employer need NOT restore salary deferrals for the employees that are included retroactively.

3. Because these retroactively included employees didn't have any salary deferrals for the year, the employer would have no matching contributions to restore.

4. Because the hourly employees are retroactively included, the ADP and ACP tests would still be performed without these hourly employees under the rule in the 401(k) regs that says you only include those eligible employees that actually had an opportunity to make salary deferrals. If this is true, it really makes the retroactive eligibility sort of a myth for the k and m portions of the plan.

Anyway, your thoughts and references are greatly appreciated.

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[MWeddell]

No, I don't think I agree with your conclusions, but first let's clarify something.

Which portions of the plan are failing coverage testing prior to your proposed retroactive amendment? The profit sharing (employer nonmatching?, the 401(k), or the 401(m) portions? All three portions?

[KJohnson]

For 401(k) and 401(m) portions you must make QNECs to correct--see 1.401(a)(4)-11(g)(3)(vii).

[Guest Phil L]

I am not entirely sure which features will fail, but there is a good chance that the P-S, match, and 401(k) features will all fail for the plan year ending 12/31/99.

Thanks KJohnson for the reference. You are absolutely correct! The correction mechanism is to provide QNECs for the k & m portions. I just didn't read far enough I guess. This was exactly what I was looking for.

Thanks again.

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