Excluded Employees Causing 410(b) Failure

[Guest 4:15 Limit]

We administer a 401(k) Plan that excludes Interns from participating in the plan. The plan has passed coverage testing every year except in 2010. We need 2 more to benefit in order to pass coverage, but there were a total of 4 excluded interns in 2010. When preparing the corrective amendment and allocating QNEC's / corrective contributions to those affected, do we have to include all 4 that were excluded even though we only need 2 to pass coverage? If we only have to include 2 out of the 4, who do we choose and how is that determined? I've looked at the plan document and it doesn't answer this question.

Any input on this would be greatly appreciated.

Thanks!

[QNPG]

We administer a 401(k) Plan that excludes Interns from participating in the plan. The plan has passed coverage testing every year except in 2010. We need 2 more to benefit in order to pass coverage, but there were a total of 4 excluded interns in 2010. When preparing the corrective amendment and allocating QNEC's / corrective contributions to those affected, do we have to include all 4 that were excluded even though we only need 2 to pass coverage? If we only have to include 2 out of the 4, who do we choose and how is that determined? I've looked at the plan document and it doesn't answer this question.

Any input on this would be greatly appreciated.

Thanks!

I am not sure which document you use, but in the Corbel document, there are specific provisions with regard to this type of coverage failure IF you use the fail-safe provisions. The correction will be to suspend the allocation conditions and expand the group of the "includible" Nonhighly Compensated Employees who are Participants by including the minimum number of Participants eligible to share in the contribution, beginning first with the "includible" Employees employed by the Employer on the last day of the Plan Year who have completed the greatest number of Hours of Service in the Plan Year, then the "includible" Employees who have completed the greatest number of Hours of Service during the Plan Year, and continuing to suspend the allocation conditions for each "includible" Employee who completed Hours of Service, from the greatest number of Hours of Service to the least, until the Plan satisfies the "ratio percentage test" for the Plan Year.

[Guest 4:15 Limit]

According to our plan document, in order to apply the fail safe provisions stated in the document, the 410(b) failure must be related to a failure due to imposing allocation conditions; it doesn't address anything with regards to failing because of eligiblity provisions & excluded employees.

[QNPG]

According to our plan document, in order to apply the fail safe provisions stated in the document, the 410(b) failure must be related to a failure due to imposing allocation conditions; it doesn't address anything with regards to failing because of eligiblity provisions & excluded employees.

Try this Tres. Reg: 1.401(a)(4)-11(g). I think this is for what you are searching.

[DMcGovern]

EOB, Chapter 8, Section V Part C.6 - additional coverage testing might be necessary after "fail safe" is activated..... Basically, this paragraph says that if you still do not pass the ratio test after utilizing the fail safe options, you proceed to the average benefits test to see if it will pass coverage without adding back excluded employees

[QNPG]

EOB, Chapter 8, Section V Part C.6 - additional coverage testing might be necessary after "fail safe" is activated..... Basically, this paragraph says that if you still do not pass the ratio test after utilizing the fail safe options, you proceed to the average benefits test to see if it will pass coverage without adding back excluded employees

DMcGovern, this is true for a failure having to do with the allocation requirement being the reason of the failure, correct? This was a failure due to complete exclusion from eligibilty due the a determinable class such as "intern".

[ESOP Guy]

I am not trying to insult your intelligence here but I want to ask. Interns tend to be young and short term employees. Are you sure you have to have them on the coverage test? Most plans I work with that hire interns the interns are Otherwise Excludable employees.

Once again you may have covered that already and that is why you are asking, but worth checking I guess.

[DMcGovern]

EOB, Chapter 8, Section V Part C.6 - additional coverage testing might be necessary after "fail safe" is activated..... Basically, this paragraph says that if you still do not pass the ratio test after utilizing the fail safe options, you proceed to the average benefits test to see if it will pass coverage without adding back excluded employees

DMcGovern, this is true for a failure having to do with the allocation requirement being the reason of the failure, correct? This was a failure due to complete exclusion from eligibilty due the a determinable class such as "intern".

this paragraph in EOB explains that some times you still fail the ratio test after using the fail safe options. I can't think of reasons why you would still fail if you were not excluding a class or classes of employees - such as "intern". Yes, the last sentence of this paragraph specifically states you use this to see if the plan will pass coverage without having to cover employees excluded by job classification

[QNPG]

I am not trying to insult you intelligence here but I want to ask. Interns tend to be young and short term employees. Are you sure you have to have them on the coverage test? Most plans I work with that hire interns the interns are Otherwise Excludable employees.

Once again you may have covered that already and that is why you are asking, but worth checking I guess.

ESOP guy, good question - one that the original post should answer. (not sure if you were asking me or the orignal post)

[ESOP Guy]

I am not trying to insult you intelligence here but I want to ask. Interns tend to be young and short term employees. Are you sure you have to have them on the coverage test? Most plans I work with that hire interns the interns are Otherwise Excludable employees.

Once again you may have covered that already and that is why you are asking, but worth checking I guess.

ESOP guy, good question - one that the original post should answer. (not sure if you were asking me or the orignal post)

It was for the original post.