Last Day Rule

[CJS07]

Hi,

I have a plan that is making a discretionary PS contribution. The document states an eligible employee must complete 1000 hours and be employed on the last day of the plan year. I have a participant who completed 1000 hours but terminated on 12/31/07. Relius isn't giving her a contribution. Would she be considered an employee on the last day of the year??? She would have been an employee at the begining of the day but not at the end. . .

[austin3515]

Relius won't give it but she should get it. "actively employed on the last day" says what it says. If the person was in their working on 12/31 they were active. The EOB agrees (last time I checked anyway). In fact, I've heard people go so far as to suggest that if 12/29 happens to be a Friday, if someone worked on 12/29 they should get the contribution. This might be a little too generous...

Curious to know if others have seen this...

[JanetM]

Our PS plan has last day rule. If you were employed on last normal business day (even it was your last day of employment) you get PS.

When I was in TPA land we did all the plans that way.

[Mike Preston]

I concur.

[Belgarath]

We have a last day rule as well, but we depend upon the employer to tell us when the employer/employee relationship is severed. To use Austin's example, if the employer fires you on 12/29, or if you officially resign effective 12/29, I find it hard to see how you qualify as an employee on the "last day" of the plan year which is, in fact, 12/31. I suppose the document could perhaps define the last day as the last business day of the plan year or something like that, but I've never seen one do it. If they terminated ON 12/31, then we give them a contribution. So if a census sheet comes in with a term date of 12/30 (and the employer is filling out this sheet and certifying as to the accuracy) we do not question it, and under the terms of the document, no contribution assuming testing otherwise passes.

Do any of you have plan docs that actually define last day as last business day? If not, playing devils advocate here for the remaining participants, you could have an operational error, and be giving money to a participant who is not entitled to it, at the expense of other participants. Also possibly overcontributing/deducting contributions that aren't allowable under the terms of the plan.

[Guest BobatING]

IRS representatives addressed this concept in a Q & A session at the ASPPA annual conference a couple of years ago. Their position was that you would look at the employees last scheduled day of work during the year. For example, if December 29th was a Friday and an employee did not usually work weekends AND it was his last day of work, then he would be considered employeed on the last day of the year.

Remember, these types of Q & As only represent the opinion of the IRS rep and not the agency itself.

[austin3515]

For what its worth, I come to the exact same conclusion as Belgarath.

[Tom Poje]

so lets take your example one step further.

suppose the ee in question was deferring at a rate of 10% and he quits 12/29/07.

his final paycheck is dated 1/4/08 showing the 10% deferral.

now, since he has 'comp' in 2008 do you show him on the ADP test in 2008 though he actually performed no service in 2008 (especially if it would make a difference if passing the ADP test?)

now to add to the fun, suppose plan has immediate eligibility, and an ee is hired 12/29/07 to replace him. do you count him on the 2007 ADP test as a 0 because he worked in 2007? you want to be consistent don't you? (ignoring of course the fact you could test otherwise excludables separately so it probably wouldn't matter)

ha. don't open the can of worms - put in a policy that no one can quit within the last week of the year.

I think the same IRS personal at the ASPPA conference added the famous line "if we audited the plan and looked at the facts and circumstances, we would know if the person should have received a contribution"

[pmacduff]

Just another one of the things we TPAs confront that seems to have many different interpretations! FWIW the few times we have had this come up; we explain the last day rule and doc language to the client and then let them tell us.

Anyway...back to the original post for a moment re: Relius...if there is a 12/31 term date coded in Relius and you have the "X" in the allocation field in specs, Relius will not give that participant an allocation, even tho they may be entitled.

I delete the term date, run the allocation then put the date back in to print off the census/ee status reports. However, be mindful that you made the change if you have to reverse and rerun the allocation for any reason.

[GMK]

Thanks for all the comments.

And am I happy that we decided not to have a Last Day Rule in our plans.

[Tom Poje]

Lady MacDuff:

or else simply go into census and change eligibility from No to "Yes, override" after eligibility has been run.