If a plan fails a coverage test, what is the immediate next step an employer should take?

When a plan fails a coverage test, the immediate next step for an employer is to implement corrective actions. This step typically involves evaluating the reasons for the failure and determining how best to rectify the situation to ensure compliance with coverage requirements.

Corrective actions may include modifying the plan or making adjustments to employee classifications or eligibility criteria to ensure that the required percentage of employees is covered by the plan. Addressing coverage issues promptly helps in maintaining the qualified status of the 401(k) plan and ensures that employees have access to the retirement benefits intended by the plan.

Notifying the Department of Labor or terminating the plan are not immediate actions and would generally come later if necessary after assessing the situation. Reviewing all employee classifications would be part of the corrective actions but is not the immediate next step; it's more of an assessment process within that corrective action strategy.