401(a)(26) and document

[retbenser]

Under 401(a)(26), a DB plan has to cover on 40% of employees.

Question: Does the plan document have to specifiy which employee?

Question: Can you pick and choose the employees to be included (as long as you pass the other nondiscrimination test)?

Thanks for all responses.

[QNPG]

Under 401(a)(26), a DB plan has to cover on 40% of employees.

Question: Does the plan document have to specifiy which employee?

Question: Can you pick and choose the employees to be included (as long as you pass the other nondiscrimination test)?

Thanks for all responses.

401(a)(26) requires coverage of the LESSER of -

1. 50 EEs OR

2. the GREATER of - 40% of all employees of the employer OR two employees.

Classification of HCE and NHCE is not relevant for 401(a)(26); however, in order to pass 410(b) coverage, exclusions must be definitely determinable business classifications (unless you pass the 70% ratio test). You can pick and choose to some degree but you would need to be very watchful of the 410(b) test if you use names to exclude. You may have to turn to the average benefit test to satisfy coverage and there you cannot exclude by name.

As for the plan document, the purpose of the plan is for the exclusive benefit of the "employees". I'm sure your plan document defines "eligible employee", and if there are any excluded employees or ineligible employees, would be required to state those as well.

Hope this helps.

[John Feldt ERPA CPC QPA]

If you realize the plan failed 401a26 for the prior year, your amendment under -11(g) can pick and choose those who will be given additional benefits. If you begin doing this too often, the IRS may doubt that the plan has definitely determinable benefits.

Because it's a DB plan, it has to have definitely determinable benefits in the first place, so the only way to pick and choose is by using the plan's written language.