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this is one of those areas in which there is no guidance if it was ADP testing (from ERISA Outline Book, Chapter 12, VI B7). [in other words, to have the HCE show as 0% on nondiscrim test might be considered too aggressive 7.a.HCE takes no compensation for plan year. This issue also arises when an HCE, particular one who is an owner of the plan sponsor, does not receive a salary, and does not otherwise receive any compensation for the plan year. This is another one of those situations where there is no clear guidance from IRS, and it may place a plan administrator "between a rock and hard place" to resolve the issue. The more conservative approach would be to treat the HCE as not eligible, based on the discussion in the prior paragraph. Of course, in many cases the employer would like to treat the HCE as eligible, and then calculate the HCE's deferral percentage as 0% for ADP testing and ACP testing purposes. This is probably too aggressive a position. Even if the HCE is treated as eligible, should the deferral percentage actually be 0%? A case could be made that to defer $0 out of zero compensation is actually a 100% deferral. Given these mathematical gyrations, it is probably a sounder approach to treat the HCE as ineligible until formal guidance is issued by IRS. The IRS acknowledged this to be a reasonable approach at the ASPPA 2000 Fall Conference in Washington, D.C., in a "Q&A" session with IRS representatives. In the Q&A Session, the issue dealt with a partner in a partnership whose earned income was negative for a plan year.

This it? Employee_Plans_Determination_-_Quality_Assurance_Bulletin.pdf

His loss of coverage is a Special Enrollment event (under HIPAA Portability rules). As such, he is allowed to enroll for coverage for both himself and his spouse. There is an exception if your health plan (1) requires an employee declining coverage to state in writing the reason for declining coverage is the existence of other coverage and (2) at or before the time the employee declined coverage, the employee is provided with notice of the requirement to provide the statement (and the consequences of the employee's failure to provide the statement), and the employee does not provide the statement. In that case the employee's request to add the spouse could be refused.