Failed 410(b) Test

[mming]

We have a profit sharing plan based on a Corbel document that does not seem to address how to correct a failed 410(B) test. There are 13 NHCEs participating at some point during the year in question, but only 9 are entitled to receive an allocation. All of the HCEs are eligible for an allocation - meaning that I need at least 10 NHCEs to pass the test (I assume you have to round up after calculating 70% of NHCEs). Plan is not top heavy.

The document has both a 1,000 hours and a last day of the year requirement for a participant to receive an allocation. The four remaining NHCEs were new participants who terminated during the year, 2 with >1,000 hours and two with 500-1,000 hours.

I've heard about the "failsafe" method that lowers the hours requirement until enough participants receive an allocation so that 410(B) passes, but I don't know how I could use this here - I only need 1 more NHCE and there's 2 with more than 1,000 hours. I'm guessing you can't just give an allocation to the one with the most hours.

Would the solution be to waive the last day requirement as the "failsafe" and give an allocation to the 2 terminated participants with >1,000 hours? Are there other options and can they be used without the document specifying them? Any info is much appreciated.

[SMB]

Dear mming -

First of all, I have some difficulty believing that you have a CORBEL document that does not address this issue. I have a number of plans that use a CORBEL prototype (versus volume submitter). Check the underlying Plan & Trust document. Look towards the very end of "ALLOCATION OF CONTRIBUTIONS, FORFEITURES AND EARNINGS" - Section 4.3(n) in the doc I have - which specifically addresses how to correct a failed 410(B) test.

Also, I assume from your post that you failed the "Ratio Percentage Test" of 401(B). Did you check to see if you may have passed via the "Average Benefits Test"? You can sometimes be pleasantly surprised!

[mming]

SMB,

I neglected to specify that the plan uses the volume submitter version of the Corbel document.

The Average Benefits Test was conducted as soon as we discovered the Ratio % Test failed, with similar results. Of the 2 tests it would appear that less contributions are required to correct the Ratio % Test.

[Guest]

rather than amend plan (e.g. waiving last day requirement for ees with 1000 hours)

you could put in a corrective amendment

1.401(a)(4)-11(g)

By this agreement, the ____________plan is hereby amended as follows, effective as of ______

basically the amendment would read

for the plan year ending 12/31/1999, in additipon to the employer contribution alloacted in accordance with the existing provisions of the plan document, an additional contribution of $________ shall be made an allocated as follows:

$________ shall be alloacted to ________

etc.

It is intended that this amendment shall be considered a corrective amendment under treasury regulation 1.401(a)(4)-11(g)

In witness thereof this aggreement has been executed this day on _____, 2000.

In regards to the avg ben test, did you use all options available? test using comp from date of participation, use age definition nearest or last, statutory exclude ees, etc?