coverage/nondiscrimination testing

Wow, suffering from terminal brain cramp. Suppose an employer has a Money Purchase plan with standard last day/1,000 hour requirement. Employer is terminating a group of employees, many of who are  HCE's. Employer wants to amend the plan to waive the 1,000 hour/last day requirement for THIS GROUP OF EMPLOYEES ONLY. Contribution level will be the same as for everyone else.

This shouldn't inherently cause a coverage testing problem, right? They will just all be included in the coverage test, and the plan will pass or fail as usual. But it'll have to be tested for nondiscrimination? Something is bothering me here, but I can't put my finger on the correct citation.

Maybe what's bothering me is 1.401(a)(4)-2(b)(4)(iii). This amendment would take you out of design-based safe harbor status, and then you'd have to general test?

If nothing else scuttles the idea, section 1c2 will create a problem. Doesn't - 5 create a problem also?

Thanks Mike, this helps. Yeah, the smell test on this seems bad - I was just wondering if there was a more definitive item I was missing. 

12 hours ago, Belgarath said:

Thanks Mike, this helps. Yeah, the smell test on this seems bad - I was just wondering if there was a more definitive item I was missing. 

-5 is facts and circumstances. If the group that benefits here has some NHCEs (arguably, more than a "token" number, whatever that is), and the amendment makes sense/seems fair (e.g., COVID or transaction-related), my guess is that you would be OK on facts and circumstances for the amendment under -5. It's sort of like a partial termination, e.g. if all the HCEs and only a few of the non-HCEs were only partially vested, and you called a PT, the benefit would fall primarily on the HCEs, but it would be OK. It's interesting that if instead of removing the last day requirement you were imputing service (which in a way is very similar, i.e., imputing that they work through 12/31), you would be under the -11(d)(3) regs, and those are VERY liberal and have more examples than the -5 regs.

Not Covid related. Just eliminating a small unit/division, many of whom are HCE's, and the real goal here is to benefit the HCE's. They have never done this before when eliminating employees...