Failed Coverage/11g amendment necessary and statutory exclusions???

Hi!

I have a small plan that has always consisted of only 4 owners. Funding their PS has never been an issue until now when they've started to hire part time employees. The coverage test is failing.

FACTS:

1. Eligibility is 21 and 3 months svc with monthly entry.
2. They exclude part time (PT) employees
3. 3 year Vesting

• PT EE #1 - Hired 5/13/2022. Termed 4/20/23. Excluded PT but met eligibility & could enter 9/1/22
• PT EE #2 - Hired 5/16/2023. Termed 8/7/23. Excluded PT and termed before entry.
• PT EE #3 - Hired 10/11/23. Excluded PT and still working PT. Would enter 2/1/24

PT EE #1 who would have been eligible has terminated and would be 0% vested. 

I guess my question is an 11g amendment required here or could PT EE #1 meet statutory exclusion and be excluded from tests? 

If I have to do an 11g amendment and I need to expand coverage what is the best way to do so? Who would get an allocation? The one possibly eligible PT'er is gone and would be 0% vested. PT EE #2 termed before entry. And PT EE #3 is meeting eligibility in 2024. 

What is the solution here? 

46 minutes ago, bethp38 said:

They exclude part time (PT) employees

I think this is your biggest problem, unless there is more to the exclusion language (e.g., unless/until they work 1000 hours). Assuming the plan has the proper language I think you can exclude from testing. If not, they might be otherwise excluded from testing but participation and contributions in the plan would be governed by plan terms.

Are you referring to this language?

Also, the Elapsed time method is selected and under this section, the "eligibility to participate" is selected

Yes, provided Plan Section 1.28(f) provides for such employees entry into the Plan upon completion of 1000 hours in a computation period. 

None of these people meet the statutory eligibility of 410(a).  So test them separately.

Thank you both for your replies. Very helpful!