410b failsafe - opinion on "greatest amount of service"

or maybe it is not an opinion as often times someone here knows something to be bonafide fact. at any rate this plan has last day and 1000 hour for PS allocation. not passing coverage so it says to add those still employed but under 1000 first, then to those with "greatest amount of service during the Plan Year before terminating" and similarly situated employees will be treated the same. so need to add one EE out of those terminated to pass coverage. there are two options

terminated employee A - terminated 09/28/2020 with 200 hours

terminated employee B - terminated 9/15/2020 with 480 hours

which employee from above has the "greatest amount of service"? I could make an argument for A, B or for both being "similarly situated" since service conditions are based on both time and hours. 

thoughts?

While the definition is an issue, this is an example of why I never want the plan to specify the fail-safe correction. I would much prefer to have all options available and do an -11g amendment to correct.

1. Agree with Bill on preference to use 11g amendments.

2. If plan defines year of service in terms of hours, then my opinion is that hours should be your measuring standard and employee B gets added. 

3. Could Plan Administrator reasonably interpret that provision in the alternative? Sure, and maybe that is best way to handle, but then document their decision so it gets applied consistently in the future.

4. The spirit of the failsafe is to add in the people closest to fulfilling the allocation requirement - but if you require both hours and year-end employment, who is considered closest, most hours or latest employment? The provision disregards the 1,000 hour rule first in favor of year-end employment, so maybe that is the intended measuring stick for who is closest, so I'm no longer strongly favoring hours as stated in #2 above.

Suggest the Plan Administrator decides and then amending out this provision in favor of future 11g amendments.

If you have fail safe it's probably spelled out in detail and without discretion in your master text. I'm pretty sure ours reads something like

1 add back active NHCE with the most hours until you pass or run out of them then go to 2.

2 add back NHCEs who terminated closest to the end of the year, if more than one on the same day add all that terminated on that date even if more than needed.

So in our document you'd add back employee A who terminated 9/28. But your document may be drafted differently. And I'll add my voice to the chorus of 11g amendments if you want maximum flexibility to pick and choose who gets added back in to pass testing.

19 hours ago, Lou S. said:

If you have fail safe it's probably spelled out in detail and without discretion in your master text. I'm pretty sure ours reads something like

1 add back active NHCE with the most hours until you pass or run out of them then go to 2.

2 add back NHCEs who terminated closest to the end of the year, if more than one on the same day add all that terminated on that date even if more than needed.

So in our document you'd add back employee A who terminated 9/28. But your document may be drafted differently. And I'll add my voice to the chorus of 11g amendments if you want maximum flexibility to pick and choose who gets added back in to pass testing.

that is how I was leaning. thanks for thinking out loud with me

On 3/1/2021 at 12:21 PM, CuseFan said:

The spirit of the failsafe is to add in the people closest to fulfilling the allocation requirement - but if you require both hours and year-end employment, who is considered closest, most hours or latest employment? The provision disregards the 1,000 hour rule first in favor of year-end employment, so maybe that is the intended measuring stick for who is closest, so I'm no longer strongly favoring hours as stated in #2 above.

IMHO, that's overthinking it. Think you had it right the first time, CuseFan.

On 3/1/2021 at 12:21 PM, CuseFan said:

Could Plan Administrator reasonably interpret that provision in the alternative? Sure, and maybe that is best way to handle, but then document their decision so it gets applied consistently in the future.

Completely agree. A written memorandum regarding interpretation, that applies going forward, is the way to handle it.