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Inclusion of excludable employee?


AndyH

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We're testing a cross tested plan using the accrued to date method. The test fails on this and other (e.g. annual method) bases.

The plan requires 1000 hours and employment on the last day to receive a contribution. There's a participant who would have an high EBAR and help the test (because of the accrued to date method), but he didn't receive a contribution because he terminated with under 501 hours, so he's statutorily excludable.

Can we include such people (in the test)? What are the rules for including (in the test) statutorily excludable people who are in fact excluded? If we brought him in, does this mean we have to bring in people who didn't meet the plan's age and service requirements as 0%s?

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1.410(B)-6(f ) says an employee MAY be treated as excludable if he terminates with

Also,he was a participant. How will bringing him into the test force you to bring in ees who didn't meet age/service?

If all else fails,can you just give him a nominal allocation by means of a corrective amendment,assuming he's the only one in this category? This will bring him into the test without anyone else,and shouldn't adversely affect your accrued-to-date results.

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Thanks for the cite, Merlin. That will do it.

And your idea about a corrective amendment is a good one, except that the plan already has failsafe language. But, we're trying to avoid using that because it happens to produce undesirable results in this particular case.

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I am a little bit puzzled. since ee didn't receive a contribution, he couldn't have a high e-bar, it would be zero.

Maybe you mean to say you will give him a benefit, but that would require an amendment.

Be careful on you fail safe language. That probably pertains to 410(B) and not cross testing.

If plan passes 410(B), but fails 401(a)(4) then you can put in an amendment allocating a contribution to a specific individual(s)

(see 1.401(a)(4)-11(g) - hopefully I have the site I am doing this from what little memory I have on a Friday.

The benefit must be meaningful, e.g. if ee is termianted an zero vested, it doesn't count.

my understanding that it is an option with terminees <500 hours. but if you bring in one, you have to treat all terminees the same, and that might not work.

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Tom, this is the accrued to date, or account balance method, where the ebar is based uon the projection of the balance/years benefitting/average compensation, and under this method, his average comp and years benefitting don't change, he retains (almost) the same ebar as last year's test reflected, and since he is young, that is a high EBAR.

And, true, bringing all of them in might not have a net positive effect; but we've got 2 HCEs near the top and the NHCEs who used to have higher EBARS are gone, so we're exploring options.

And, regarding failsafe, almost all of our plans had 401(a)(4) cross testing failsafe language approved. With the GUST restatements, however, they're requiring us to remove it.

The language increases the youngest NHCE below a failing group incrementally until the EBAR exceeds that of the HCE in the failing rate group, then goes to the next youngest NHCE, etc.

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Tom,

Accrued to date: he had contributions in prior years, but none this year.

I also am under the impression that if you use the last day 501 hour rule to exclude people from the test that you must exclude all. Even though the language says that ypu "may" exclude, I don't think that means that you may treat some differently than others.

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