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correcting coverage failure


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Safe Harbor 3% plan for controlled group.  We have a location that we have been excluding and now cannot pass coverage or average benefits (unless a significant profit sharing is made to the staff of the eligible location).

My question is, can we bring in the staff needed to pass the 70% coverage test at the excluded location? Would we have to allow them to defer since they would now be considered a plan participant?

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I think it depends on your amendment. Are you only correcting for the year of failure and bringing people in for just that year? If so I think you could do a QNEC of 3% plus the missed deferral opportunity which I believe would be the average ADP of the NHCEs for the year in question.

If you are bringing them in as full participants because you expect ongoing failures, then yes you would have to give them the ability to deferral as well.


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