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leighl

Non-excludable employee move to excludable group

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If a participant goes from a non-excluded class to an excluded class, is he still eligible for the contributions under the plan?  Specifically, the plan excludes employees who "normally work fewer than 20 hours per week", and a full-time employee is going to a part-time position that would be excluded.  Is he still eligible to receive benefits?  Or is he now in an excluded class and not eligible for the plan?

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Isn't the whole idea behind there being an excluded class is that they are excluded?

IN the defined benefit plans I have seen, if someone stops being an eligible employee, their accrued benefit is frozen.  They continue to participate and, if applicable, earn service for vesting.  If they remain in an ineligible class until normal retirement age, they become fully vested and entitled, upon separation from service, for the benefits earned up to the date they ceased to be an eligible employee.  How could it be done otherwise?

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You should consider the rules for determining whether an employee "normally works fewer than 20 hours per week".  There is an overriding caveat for employees who have worked 1000 hours during a previous year.

Good Luck!

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Can a plan subject to ERISA use an exclusion like "normally works fewer than 20 hours per week"?  Paid on an hourly (or salaried) basis, works )or doesn't work) at the Emerald City location, covered by a collective bargaining agreement would all be fine, but (to belabor the point) what does "normal" mean?  If the person works under 20 hours per week five months per year or seven months per year or most of the time but they might work more than 20 hours in any given week, are they eligible or not? 

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The regs have a clear description of who can be excluded under the <20 hours per week exclusion.

Quote

 

1.403(b)-5(b)(4)(iII)(B) For purposes of paragraph (b)(4)(ii)(E) of this section, an employee normally works fewer than 20 hours per week if and only if—

1.403(b)-5(b)(4)(iii)(B)(1)(1) For the 12-month period beginning on the date the employee's employment commenced, the employer reasonably expects the employee to work fewer than 1,000 hours of service (as defined in section 410(a)(3)(C)) in such period; and

1.403(b)-5(b)(4)(iii)(B)(2)(2) For each plan year ending after the close of the 12-month period beginning on the date the employee's employment commenced (or, if the plan so provides, each subsequent 12-month period), the employee worked fewer than 1,000 hours of service in the preceding 12-month period. (See, however, section 202(a)(1) of the Employee Retirement Income Security Act of 1974 (ERISA) (88 Stat. 829) Public Law 93-406, and regulations under section 410(a) of the Internal Revenue Code applicable with respect to plans that are subject to Title I of ERISA.)


 

 As noted in the reg, this rule conflicts with ERISA's service based participation rules.  There is also an all or nothing rule in 1.403(b)-5(b)(4)(i) where if a single person who could be excluded under this exception is allowed to participate, you lose the ability to use the exception.  With that kind of situation usually becoming apparent after the fact, be forewarned that it can get expensive to fix if someone messes up.  Use the exclusion at your own risk.  

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