FAQ 441: 410b--Adding back terminated employee to pass coverage

Problem: I have a profit sharing plan with a last day 1,000 hours allocation. The plan is top-heavy and is failing 410(b). I have one active participant with 600 hours getting the minimum 3% and I have to bring in 5 more participants to pass 410(b). How do I code the plan so my 404 test includes compensation for these employees receiving an allocation and not include the other terminated participants that are not receiving an allocation?

Solution: The steps to accomplish this are as follows: 1. In their employee record, give the five participants a unique status code, such as "X". 2. On the Group Definition (GROUPDEF) screen in the general specs, change group 4 to include all active statuses -- ABC. Put "X" into group 3, so that only X's will be in this group. 3. On the Benefit Limits (BENLIMIT) screen in general specs, make sure that groups 3 and 4 are included in the 404 Limit Groups Included field. Also, change Hours required to "1". 4. If not already coded "34" and "1" hour, change the top-heavy minimum requirements to match the 404 specs. 4. If you want the five included in the allocations if you rerun valuation calculations (as opposed to just forcing the ER contribution numbers), leave groups 3 and 4 coded as eligible for employer contribution allocations, and change the hours required to "1". If you are forcing the numbers, you may not need to change this coding. Just remember that valuation calculations will look at the source 2 specs screen to determine who is eligible for a contribution. In addition, if the adjusted employees are terminated employees and the user is printing Valuation Reports (ASC menu - Reports), you will want to change the status code for these employees back to their original status codes prior to the coding adjustment. This will ensure that these employees will be reported in the correct reports as terminated employees.