A small DB plan with all family members except one NHCE - he quits with 700 hours worked. Did not accrue a benefit because 1000 hours required.
Do I fail 410b? I fear I do.
My plan already has language to allow a benefit accrual for this person if needed, but I don't want to recommend it to the client, 'cause the person was not vested.
Do I grant the accrual - then forfeit it?

I fear you are correct. I'm assuming that he had already satisfied initial eligibility requirements.

If the plan has the fail-safe provision, then I think they get the accrual for the year and you pass 410(b). I see it as a suspension of the 1000 hour requirement. Vesting would not be an issue unless you had to amend the plan under -11(g) of the 401(a)(4) regs.

But there is no requirement that vesting be modified, right ? so it seems the forfeiture does occur.

Is this one of those 'situations' though where the IRS is going to say that the accrual doesn't count because of the lack of vesting? (I realize it is not required but they are getting sticky with respect to DC plans where contributions are granted to employees knowing that they will not actually receive anything).

The vesting requirement comes from the 11-(g) requirement that a corrective amendment provide benefits that are "meaningful". If you are not amending, you don't fact this issue.

But then again, that is what DFerrare already said so I'll just say ditto.