Qualified Replacement Plan - "Active Participants" under 4980

[BentoBox]

Working with a client who has a small excess in a term'd DB plan and wants to use the excess for matching contributions under the client's existing 401k plan.  The 401k plan provides for immediate eligibility for FT and PT employees with autoenrollment.  We have assumed, therefore, that the replacement plan will satisfy the 95% rule b/c all of the active employees who participated in the DB plan would be immediately eligible for 401k plan with an auto-election and would have had to affirmatively opt-out.  But do folks actually go through the plan rosters and count the number of active former DB participants who are active prtcpts in the replacement plan?   (These are big plans and counting would be somewhat manual).  Second, can anyone point to guidance on who constitutes an "active participant" in a replacement plan?  Is it mere eligibility or does the active participant have to have a balance?  Third, I realize that there are restrictions in the PLRs on using the excess for match.  But I'm pretty comfortable that if the excess is applied to match earned in the previous payroll period w/r/t previously made elective contributions, we should satisfy the match rules.  Any thoughts?

[CuseFan]

9 hours ago, BentoBox said:

wants to use the excess for matching contributions

no can do - from a good Mercer article on QRPs:

A number of PLRs say that surplus assets transferred to a QRP can’t be used to fund matching contributions earned after the transfer. This is because the transferred surplus is treated as a contribution, and Section 401(m) regulations prohibit employers from funding matching contributions before an employee’s elective deferrals have been made or before the employee has performed the services to which the contributions relate. In most cases, surplus assets are transferred to a QRP before participants have earned a match, so the surplus can’t be used for matching contributions.

The article did suggest that some of the surplus could be used in the year of transfer for current year match on deferrals already made but for which matching contributions have not been funded.

[CuseFan]

Sorry, saw the rest of your post and you're aware of that issue.

On the 95% actives determination - not defined, but if 95%+ of the employed and covered DB population as of the PPTD are eligible for the QRP (do not think they need to be deferring and getting a match) then I think you're good. Your DB actives should have an accrued benefit but need not have been earning current accruals.

For example, if you have 100 DB "actives" and at least 95 were eligible for a QRP that has a PS where you used the excess for PS, if some of those people then later terminated or failed to work the necessary number of hours, still think you're OK. I think it's a one-time determination as of the PPTD.

[BentoBox]

Thank you CuseFanz!  I'm getting to the same conclusion -  make sure that at least 95% of the participants in the termd plan who are still active at least have a balance/accrued benefit in the replacement plan - but they need not be actively deferring.  I agree with your comments on the match - but we will be contributing the surplus to fund match after the deferral elections to which the match relates have already been made (and the service has already been provided.   Some of the QRP rules seem hyperfocused on form over substance.