Fail-safe provision for 410(b) and 401(a)(26)

[QNPG]

These questions are related to section 23(d)(3) of the Corbel DB non-standardized adoption agreement and section 5.2(j) of the Corbel basic document of the adoption agreement (EGTRRA updated).

We are adding an employee as a participant pursuant to the above provision of the document. Questions:

(a) Is the accrual calculated using the accrual rules as adopted in the adoption agreement?

(b) Can this be just a one year accrual, i.e., for next year, if the plan passes the test without this particular employee, can we exclude him at that point?

© Do we count him as a participant in the year of failure or in the year we are doing the correction, i.e., do we need to calculate a pension contribution for him in the year of failure or in the year of correction?

Any guidance would be greatly appreciated!

[Guest aric1936]

These questions are related to section 23(d)(3) of the Corbel DB non-standardized adoption agreement and section 5.2(j) of the Corbel basic document of the adoption agreement (EGTRRA updated).

We are adding an employee as a participant pursuant to the above provision of the document. Questions:

(a) Is the accrual calculated using the accrual rules as adopted in the adoption agreement?

(b) Can this be just a one year accrual, i.e., for next year, if the plan passes the test without this particular employee, can we exclude him at that point?

© Do we count him as a participant in the year of failure or in the year we are doing the correction, i.e., do we need to calculate a pension contribution for him in the year of failure or in the year of correction?

Any guidance would be greatly appreciated!

With fail safe language you should not require an 11(g). Look at the base document, 5.2(j)(4) if this is an EGTRRA doc.

(a) The accrual is calculated just as any participant would have under the formula.

(b) It's a one year accrual if you are bringing in just for the year to satisfy testing

© Not sure I follow, but he should have an accrual during the plan year, for which you are testing. if testing for 2010, then accrual is during 2010. depending on the valuation date, your "test" may actually be the next year's test so that the correct period of accrual is covered.

I believe there may be questions of how many "includables" would need to be brought in to pass.

[John Feldt ERPA CPC QPA]

Sometimes having the failsafe language ends up being more expensive (in benefit accrual costs) than the cost of an amendment to make the plan pass as allowed under 1.401(a)(4)-11(g). However, the document can't have both, it's either an automatic accrual under the failsafe language, of it's a crafted accrual under the terms of an amendment under -11(g).

When drafting the amendment, if you only need the NHCE accruals for the prior year, make sure that the terms of the amendment are clear on that, especially the eligible employee definition and the accrual formula definition.