401(m) Coverage Failure

[Catch22PGM]

A non-governmental 403(b) plan has no class exclusions for elective deferrals so everyone is eligible to participate.  The plan has several class exclusions for match - of course they are all NHCE and the plan fails the ratio percentage test - the average benefits test is even worse.  We can get the ratio percentage test to pass with an 11g amendment to bring-in one of the excluded classes.  My question - if none of these employees being brought-in by the 11g amendment elected to defer, is the plan sponsor required to give them a contribution?  If so, how is it calculated?

[Lou S.]

I don't work with 403(b)s so if the rules are different then this isn't applicable.

But my understanding is the 11g amendment has to have a tangible economic benefit for it to be valid. One approach of the 11g amendment might be to give a QMAC to the the newly included group equal to the ACP percentage of the NHCEs in the plan.

[Catch22PGM]

That was my initial thought as well.  It didn't seem plausible that we could bring in a group to pass coverage even though none of them receive a benefit.  I guess the fact that they could have contributed elective deferrals, but chose not to, gave me pause.

[BG5150]

Does the plan have fail-safe language to fix coverage issues?  If it does, do you even have 11-g available?

[Catch22PGM]

No fail-safe - it's an option in the adoption agreement that hasn't been elected so we can use 11g.  Good point though - always check the document language first.