Deferral only plan - coverage problem, or not?

[John Feldt ERPA CPC QPA]

A plan has immediate eligibility and only allows deferrals. One job type is excluded which consists of NHCEs (normally about 18% of their workforce). The size of that group doubled in 2013, making them become about 36% of the workforce.

There is only one HCE. The HCE did not defer last year.

Can the plan test the deferral portion of the plan for coverage by using the average benefits percentage test?

All of the NHCEs are benefitting at the same rate or higher as the HCE (HCE rate is zero) - this seems too good to be true - what am I missing?

[12AX7]

If you were testing any other component of the plan, you certainly would include deferrals. I assume there are no other plans to be included in the testing group and you appear to be above the safe harbor coverage point for the NHCEs.

Tom and ETK do really well at enumerating on these issues.

[Tom Poje]

well, what do the regs say?

There are 2 ways of passing coverage.

1. ratio % test - you fail at less than 70%

2. avg ben test - since this is an option, no reason you can't use it (unless you have people excluded by name or something that is basically the same as exclusion by name - you do not seem to fall into this category)

of course if you have a document with fail safe language, then option 2 is out and you have to provide a QNEC to people to pass coverage.

the main reason I hate fail safe language.

ha. no true guidelines on how much to provide if you end up there. usually something to help you pass other testing, but you don't have anything else to pass.

by the way, I have a similar plan, but some HCEs are deferring, so they have to provide a QNEC to a few people every year to pass coverage.

[BettyBoop83]

Have a plan with an excluded class; fails coverage for the deferral and match components of the plan. The document elects fail safe language. I know that I need to provide a QNEC for deferral component to correct.

To correct the match component, would that be another QNEC/QMAC or a matching contribution following the formula used to allocate to other benefiting participants? I recall that the missed deferral correction now allows for a non-QNEC/QMAC allocation to correct. I am just not sure if that is allowed for coverage failure.

Can someone direct me to Regs that outline the amount of QNEC required? Also, the ADP and ACP tests are currently failing, so would the corrective contributions be considered in the ADP/ACP tests and reduce the failures?