When a plan is terminating, does the termination date affect the plan year for performing coverage tests?

The termination date of a 401(k) plan does indeed affect how coverage tests are performed. When a plan is terminating, coverage tests are still required for the ongoing plan year. This means that even as the plan approaches its end, the testing must be completed to ensure that the plan complies with non-discrimination requirements. These tests are important because they determine whether the plan is providing sufficient coverage to a diverse group of employees rather than favoring highly compensated employees.

Coverage tests are typically conducted for the entire plan year, and termination does not exempt the plan from undergoing this requirement. Therefore, the coverage test is still applicable, as it provides essential compliance data that can influence the treatment of distributions and potential penalties related to the plan's termination.

The idea that testing might be voided or not needed is incorrect because ensuring compliance up until termination is crucial for satisfying regulatory obligations. Additionally, stating that termination would end the plan year immediately lacks recognition of the regulatory requirements surrounding non-discrimination testing. This testing is a significant part of maintaining the integrity of retirement plans even as they are being concluded.