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Last Day of Plan Year - Eligibility or Employment


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A plan excludes unions and has a last day of the plan year allocation requirement for profit sharing contributions.  An employee enters the plan, but later during the year changes job to a union position.

Can the plan require a participant to be an eligible employee on the last day of the year to be eligible for an allocation, or is that limited to employment on last day of the year?

 

 

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I have never seen a plan that would exclude this individual based on a last day employment provision.  He IS employed on the last day.  

I'm guess you can write a provision that would exclude some allocations if he is a union employee on the last day, but you still would have to provide top heavy, safe harbor, gateway, and would have to prove it to be nondiscriminatory for participation because you don't get a free pass on those kinds of things for the period of time when he was NOT a union employee.

Of course, unless you are rewriting plan language, I am going to bet that our plan will not exclude him for allocations based on his income while not a union employee because it will treat him as employed on the last day (just, employed as a union employee).

FWIW. 

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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Agree with Larry that the plan's general last day requirement would not apply here but that the plan could be amended for such an exclusion. A last day requirement is not a statutory exclusion so you have same coverage testing, but potentially fewer employees benefiting. Person is still employed and entitled to top heavy, as noted, if applicable - and this based on all pay, not just non-union pay, which would apply for safe harbor and  gateway purposes.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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2 hours ago, PensionPro said:

§ 416(i)(4) exempts union employees from the top heavy rules.  What is the basis for this employee's entitlement to top heavy contributions?  Never encountered this situation myself.

It has been a long time but if memory serves me correctly the TH cont would only apply to the compensation the person was a non-union employee during the year. 

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On 4/5/2018 at 1:44 PM, PensionPro said:

§ 416(i)(4) exempts union employees from the top heavy rules.  What is the basis for this employee's entitlement to top heavy contributions?  Never encountered this situation myself.

Because he was both a union and non-union employee in the same year. The non-union is entitled to the minimum.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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