Passing 410(b)... does it matter who I include?

I had 3 employees terminate during 2024 in this dentist practice.  As a result the 410(b) average benefits percentage test has failed.  The solution is to overide the test and add back into the mix one of the terminated employees.  Does it matter which employee I override and provide a PS contriution to in order to pass the test?  Of course the obvious choice would be the one who earned the least because that the contribution amount would be smaller. 

If you're following a document's failsafe provision, you have to choose who that indicates.  Absent that and doing an -11(g), then they can choose who they'd like to provide additional benefits to.

Just don't try to give it to someone who you know terminated and is also nonvested, such that they'd never see the benefit anyway.

Thanks!  I will look at the document

4 hours ago, Basically said:

As a result the 410(b) average benefits percentage test has failed

If you're using the average benefits test to pass coverage, then remember the average benefits percentage test is only part of it. You also have to pass the nondiscriminatory classification test, and part of that test is that you have to have a reasonable classification. Excluding (or including) people by name is deemed not reasonable. So if you pick and choose which of the people who would otherwise be not benefiting to now receive a benefit, I think you fail to have a reasonable classification and therefore would lose the ability to use the average benefits test.

But like Bri said, check your document. If it has a 410(b) failsafe, then it probably brings people in automatically, but chances are it brings in enough people to pass the ratio percentage test. Which might be more people than you were expecting.

"As a result the 410(b) average benefits percentage test has failed." So we assume the ratio percent test is under 70%.

Bri is correct that the plan document might restrict what you can do to make the plan pass testing, so follow that first. Otherwise, if the document gives you flexibility, you can pick the least expensive NHCE or two as needed to make it pass. But read the Carol Gold memo first about giving nominal benefits to short service low paid NHCEs, and its reference to 1.401(a)(4)-1(c)(2). And what Zeller said.

If you amend (if permitted) to provide contributions to terminated participants you should also vest those contributions otherwise they don't count.

Thank you all for your help.  The adoption agreement indicated "add just enough" opposed to "amend".  I also reached out to ftWilliam (Wolters Kluwer now I guess) support who assisted me to ensure I followed what the basic plan document says.  They also helped me use the compliance software procedure correctly (I was not clicking one of the checkboxes).  All good