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Entry Date Compensation of $0


Vlad401k

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A participant was hired sometime in 2020, but met the entry date requirements on 12/31/2020. The compensation is $0 from entry date. The participant is due a Top Heavy minimum based on 415 compensation. How should this participant be treated for testing purposes (in terms of whether they are a participant or not - due to testing compensation of $0 - and what's their allocation rate for the General Test)?

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On 2/22/2021 at 12:57 PM, Vlad401k said:

A participant was hired sometime in 2020, but met the entry date requirements on 12/31/2020. The compensation is $0 from entry date. The participant is due a Top Heavy minimum based on 415 compensation. How should this participant be treated for testing purposes (in terms of whether they are a participant or not - due to testing compensation of $0 - and what's their allocation rate for the General Test)?

Wait - you have an an "entry date requirement" met on 12/30 and that is in fact the entry date, and comp prior to entry is excluded?  What was the thinking behind that, or am I missing something?  I have plans with a last-day-of year entry date (not many) but comp for the whole year is included.

Ed Snyder

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I can't think of any reasons to use the last day of the year as an entry date that aren't abusive. But I have seen plans that say something like the entry date is the 3-month anniversary of your hire date. So if you were hired on September 30, you would legitimately enter the plan on December 30.

Back to the original question - since they were hired in 2020, I would see if I could treat them as otherwise excludable and thereby avoid addressing the problem entirely.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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