3717 / What is the minimum participation (50/40) test that applies to defined benefit pension plans?

A defined benefit plan also must benefit the lesser of (a) 50 employees or (b) the greater of (i) 40 percent of all employees or (ii) two employees (or if there is only one employee, that employee).¹ Governmental plans are not subject to this 50/40 test.²

Defined benefit plans must meet the minimum participation test on each day of the plan year. Under a simplified testing method, a plan is treated as satisfying this test if it satisfies it on any single day during the plan year so long as that day is reasonably representative of the employer’s workforce and the plan’s coverage. A plan does not have to be tested on the same day each plan year.³ Final regulations provide that a plan that does not satisfy the test for a plan year may be amended by the 15th day of the 10th month after the close of the plan year to satisfy the test retroactively.⁴ Comparable plans may not be aggregated for purposes of meeting this test.⁵

The 50/40 test may be applied separately with respect to each separate line of business if an employer makes an election to which the Secretary of the Treasury consents.⁶ Furthermore, the requirement that a separate line of business have at least 50 employees generally does not apply in determining whether a plan satisfies the 50/40 test on a separate line of business basis.⁷