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Unless you have an oddly drafted plan, employees who terminate before their entry date never become participants in the plan.

You know what, I'm going to submit this to the ASPPA IRS Q&A. This is ridiculous. There should be a definition somewhere.

Substance generally means that you can't provide an allocation to a nonvested terminee and then forfeit the benefit. Doing that would have no substance. What you describe doing seems okay to me, including cherry picking NHCEs, unless it goes so far to violate the unapproved unwritten regulations otherwise known as the Carol Gold memo. In that memo, all of the regular full time employees were excluded from the plan and only the very short time people were covered just to get the plan to pass. The Carol Gold memo indicates that certain words written in the 401(a)(4) regulations about discrimination might have to be ignored, in particular: "In making this determination, intent is irrelevant. This section sets forth the exclusive rules for determining whether a plan satisfies section 401(a)(4). A plan that complies in form and operation with the rules in this section therefore satisfies section 401(a)(4)." Basically the memo says that as long as the plan is not primarily designed to benefit mostly short service part-time employees, then you are okay, probably. Otherwise the design is violating "the spirit" of the regulations. Where do the regulations support that idea you ask? Well, although it seems to contradict the quote above from 1.401(a)(4)-1(a) above, here's 1.401(a)(4)-1(c ): "(2) Interpretation. - The provisions of §§1.401(a)(4)-1 through 1.401(a)(4)-13 must be interpreted in a reasonable manner consistent with the purpose of preventing discrimination in favor of HCEs." So, although the exclusive rules are spelled out and intent is irrelevant as stated under 1.401(a)(4)-1(a), 1.401(a)(4)-1(c ) says, "but not really." edit: for clarification