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II. The Plans Fail to Meet the Requirements of Sec.
401(a)(26)(A)
Since we have held that the Pension Plan and Profit Sharing
Plan were both ongoing plans, the next subissue is whether the
plans failed to meet the requirements imposed by either section
401(a)(26) or 410(b).
To satisfy the requirements of section 401(a)(26)(A), a plan
generally must benefit the "lesser of--(i) 50 employees of the
employer, or (ii) 40 percent or more of all employees of the
employer." It has been stipulated that the plans excluded from
participation 51 of the 66 eligible employees for the plan year
ended June 30, 1991. It has further been stipulated that only 15
eligible employees were participating in the plans for the plan
years ended June 30, 1991. Forty percent of the 66 eligible
employees is 26 employees. Since only 15 eligible employees were
participating and therefore benefiting under the plans, both
plans fail to meet the participation requirements of section
401(a)(26)(A). Since the plans fail to meet the participation
requirements of section 401(a)(26), we need not consider whether
the plans meet the minimum coverage requirements of section
410(b).
III. Highly Compensated Employee
Section 402(b)(2) requires that if a plan fails to satisfy
section 401(a)(26), a highly compensated employee must include in
gross income his "vested accrued benefit" determined as of the
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