A coverage violation not corrected within the regulatory correction period is considered what type of failure?

A coverage violation not corrected within the regulatory correction period is classified as a demographic failure because it pertains to the failure of a retirement plan to meet specific coverage requirements outlined in the Internal Revenue Code. These requirements ensure that a sufficient number of employees, particularly non-highly compensated employees, are eligible and participating in the plan to safeguard against discrimination in favor of highly compensated employees.

When a plan is found to be out of compliance with these demographic coverage rules, and the violation is not corrected in the designated timeframe, it highlights an issue with how the plan is structured in relation to the employee demographic it serves. This failure can lead to significant repercussions, including potential disqualification of the plan, which is why it's critical for plan sponsors to monitor compliance regularly and take corrective actions within the regulatory period.

The other types of failures mentioned, such as operational, technical, and eligibility, relate to different aspects of plan administration and compliance issues. Operational failures involve the misapplication of plan terms or procedural errors, technical failures pertain to issues with the plan's design features, and eligibility failures typically concern whether specific individuals meet the requirements to participate in the plan. However, since coverage violations specifically target the inclusivity of demographic groups within the plan, this scenario is definitively classified as