Failed Coverage Test

12/17/2017  The company purchase another store.  They merged the prior ER plan into their plan. 

The 13 employees were given service credit for vesting and eligibility and entered the plan 12/17/17.

They were not given credit for service for contributions, the match,  which has a 1000 hour requirement.

Coverage fails by 3 participants.

Options are:

1.  If I exclude the 13 from coverage test, it still fails. 

2.  Amend the plan to included 3 more participants that have the most hours of service.  These three have zero deferral.  Therefore match would be zero.

3.  Or could amend the plan to include the 13 new participants hours with the previous employer, all of which deferred.    Do I have a problem doing this if the Match is discretionary and they gave us a dollar amount to allocate?  Match has not yet been deposited.

Average Benefits Test has been excluded as an option.

Am I missing anything?  I don't run across this much with the plans we have.  I want to give the client some options.

Isn't there an 18-month transition period where you can test them separately?

Yes,  but it fails worse without them.

Pretty sure option 2 is a big no go as your corrective amendment has to provided "meaningful" benefits in operation.

I think option 3 would be acceptable if you pass afterwards.

What does the document say about what the remedy is?  Is there a fail-safe provision in the plan?

Language in the Plan Document

If this Subsection applies and the Hours of Service method is used, then the Administrator will suspend the allocation conditions and expand the group of the "includible" Nonhighly Compensated Employees who are Participants by including the minimum number of Participants eligible to share in the contribution, beginning first with the "includible" Employees employed by the Employer on the last day of the Plan Year who have completed the greatest number of Hours of Service in the Plan Year, then the "includible" Employees who have completed the greatest number of Hours of Service during the Plan Year, and continuing to suspend the allocation conditions for each "includible" Employee who completed Hours of Service, from the greatest number of Hours of Service to the least, until the Plan satisfies the "ratio percentage test" for the Plan Year. If two or more "includible" Employees have the same number of Hours of Service, then the Administrator will suspend the allocation conditions for all such "includible" Employees, irrespective of whether the Plan can satisfy the "ratio percentage test" by accruing benefits for fewer than all such "includible" Employees. If the Plan for any Plan Year suspends the allocation conditions for an "includible" Employee, then that Employee will share in the allocation for that Plan Year of the Employer contribution and Forfeitures, if any, without regard to whether the Employee has satisfied the other allocation conditions set forth in this Section

Is it an adoption agreement and master text? If so the adoption agreement probably has a questions like "if you fail the test do you use the fail safe language yes/no"

If that's the case and you answered "yes" than I think you are in luck and you get to use your option 2 and pass coverage because it was already in the document, if you had to add it in at this point as an 11(g) amendment I don't think you  could.

Yes it is in the plan document.  So I don't have to do an amendment?  The highest number of hours people just happen to not have deferred.  Retail business, so lots of part time people that float between 1000 hours one year and 900 hours another.

Yeah. Sounds like your are done. The plan is written to expand coverage so yo pass testing, it is irrelevant that they get $0.00 because they didn't defer.

You also have three more "zeroes" in your ADP & ACP testing...

They were already in the testing.  Bringing in active people over 850 hours. 

Not sure I understand. The 410(b)(6)(C) transition rule is not on the table, since the plans were merged, thereby changing their eligibility. Also, it is indicated that while the target store's employees joined the plan as of the date of merger, they were not given credit for service towards match requirement. If you merge the plans the surviving plan has to credit all service that was credited under nonsurviving plan.