Non-discrimination Participation Test

[Pension RC]

I am working on a DB plan with a business owner and one staff person. My software is indicating the the plan is not passing the participation test because the staff person didn't benefit in 2012. In fact, she didn't work 1000 hours in 2012 (and that's why she didn't benefit). Is her not having worked 1000 hours a reason for the plan to fail the participation test?

Any thought would be appreciated!

[Lou S.]

Yes. You have 2 folks who need to benefit under that scenario to pass 401(a)(26) and you only have 1 benefiting. Plan should have been amended to allow for staff person to have an accrual in 2012.

[My 2 cents]

It is my understanding that if the plan requires completion of 1,000 hours of service during a measurement period to enter the plan and the staff person had never met that requirement, the staff person could be considered "excludable" under the testing rules. Otherwise, I agree that if the staff person is not excludable under the testing rules, conditioning an accrual on completion of 1,000 hours in a plan year is going to cause problems.

[Tom Poje]

assuming the person was eligible in the past, then you do have issues. If the person had a break in service the prior year then it's possible they would be excluded under the break in svc rules, but that doesn't sound like the case.

in addition, it also sounds like you failed coverage.

both could have been corrected using a corrective amendment, but that should have been done within 9 1/2 months, otherwise it is a demographic failure correctible under VCP (if things are properly done)