If a plan fails the ratio percentage test, what is an option to bring more participants into the plan?

When a plan fails the ratio percentage test, it means that the percentage of highly compensated employees (HCEs) who benefit from the plan is disproportionately high compared to non-highly compensated employees (NHCEs). To address this issue, one effective option is to make a 401(k) plan amendment under Section 11(g). This amendment allows for modifications to be made that could improve participation among NHCEs, thus helping the plan meet the non-discrimination requirements outlined by the IRS.

Making a Section 11(g) amendment can involve changes such as increasing the availability of the plan to a larger group of employees or altering the benefits structure to ensure that non-highly compensated employees are more actively participating in the plan. This is a targeted approach to rectify the ratio problem by expanding participation among the broader employee base.

Other options, like increasing contribution limits or adjusting employer matching contributions, may not directly address the ratio of participants in terms of their compensation levels. Extending the eligibility period may also not be effective because it merely delays participation rather than increasing it. Thus, implementing an 11(g) amendment stands out as the most strategic course of action to bring more participants into the plan in order to satisfy the ratio percentage test.