to general test or not

Hi

An interesting situation that I never encountered.

Calendar plan with 3 provisions

401k deferrals

3% non-elective SH

PS with integrated allocation. 1000 hours+last day rule. Owner is younger than the employees so worked out great.

5 participants, 2 HCE and 3 non-HCE. 2 additional HCE's are excluded categorically

All 3 non-HCEs terminated during 2022 before the last day, 2 with under 1000 hours and 1 with over 1000 hours.

Plan passes both ratio and ABPT.

Since all non-HCEs are getting no PS allocation but only 3% SH, I do not think the plan can rely on PS allocation to be safe harbor anymore and needs to be tested for 401a4, do you agree?

Anything else I am thinking of?

As a bonus question, all 3 employees left - 2 got new jobs and 1 for difficult maternity and applied for some kind of disability. Would that constitute partial termination? They hired additional employees during 2022 of which only one remains employed.

Any comments are appreciated.

No partial plan term, as the terminations have to be employer-initiated.

I generally would agree with BG, but I'd be a little careful. The IRS generally assumes all terminations are involuntary, but that's a rebuttable assumption. So if the employer can prove to the IRS' satisfaction that these were in fact voluntary terminations (and not in response to some employer action) then yes, shouldn't be a PPT.

What may happen is that IRS and/or DOL, based the 5500, sends a letter to plan sponsor asking for information to justify a partial termination did not occur. Also, if these termed NHCEs were fully vested then no issue.

On your other question, agree you need to test your SH+PS.