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Under 1.410(b)-6(f)(1), there are five conditions that must be met in order to treat an employee as excludable: i. The employee does not benefit for the plan year, ii. The employee is eligible to participate in the plan, iii. The plan has an hours of service or last day requirement in order to accrue a benefit, iv. The employee fails to accrue a benefit solely because of the failure to meet the hours of service or last day requirement, and v. The employee terminates employment during the plan year with no more than 500 hours of service. "Plan" for 410(b) purposes means after the application of the mandatory disaggregation rules, so not the entire plan, but just the matching or profit sharing portion of the plan. See 1.410(b)-7(c). Leaving condition (iv) aside, the counselors in your example satisfy condition (i) and (v) but not condition (ii), and condition (iii) is also not satisfied. Therefore the counselors cannot be treated as excludable for purposes of the coverage test. However, the plan will likely satisfy the coverage test by disaggregating the portion of the plan covering otherwise excludable employees, that is, the employees who have not satisfied the maximum age and service conditions under 410(a)(1). That will include the counselors and presumably some of the FTEs, however as long as that group does not contain any HCEs it will automatically satisfy the coverage test. For that matter, you haven't said anything regarding the relative number of HCEs and NHCEs in the employee population. You said it is a school, so presumably there are not a lot of HCEs. Would the plan pass the ratio percentage test, even without disaggregation? How about the average benefits test?

Agreed. It sounds like a benefit claim, in which case he should get a denial letter outlining Plan terms and other 2560.503-1 reqs, with right to appeal.

Respectfully, I disagree. This is a participant claim or looks like one. Claim procedures are part of every plan document. The Plan cannot avoid this by reeling in the DOL. Follow the document!

I think you have to do what the plan says and apply the failsafe (we always use 11g after learning tough lesson years ago). In aggregation the CB then satisfies coverage, but now you have NDT and gateway and TH et al headaches. Yes, you can empathize with the client over their prior TPA's lack of service/attention, but your job is to consult with them on how to fix their plans. Good luck

There's also a good discussion of this topic in Who's the Employer reaching a similar conclusion based on Rev. Rul. 89-64 and PLR 200036027.

I think this is an instance where common sense does not prevail. Section 416 uses the 318 attribution rules. See IRC sec. 416(i)(1)(B)(I) and Treas. Reg. 1.416-1, Q&A T-16. IRC sec. 318(a)(4) says to treat an option as equivalent to ownership. See also Treas. Reg. sec. 1.318-1. My recollection is that there is at least one PLR that says you don't count an option until it is vested, i.e., has become exercisable.

The business owner might want her lawyers’ and accountants’ help to evaluate bilateral and multilateral tax treaties regarding her current domicile, current part-year residences, and current sources of income, and, if different, older-age domicile, residences, and sources of income. While many treaties have provisions meant to limit double taxation, not all do. And timing and accounting differences can result in imperfect application of the treaties’ provisions. Further, the owner/participant might consider current and potential currency restrictions and other difficulties.

Yes as long as US based income. No issues except what happens to the monies once they terminate the plan? All depends on the country they are associated with for taxation.

I agree with you both. It is required to look at the hours worked at the end of each plan year. If an employee has worked 1000 or more hours in the preceding year, he or she is eligible in the year following. And, of course, once eligible, always eligible. There are many articles etc cautioning against the use of the "20 hour" rule. It is a compliance trap. Also, in the IRS audit documents I have read, the focus is on 1000 hours. I would not divide 1000 hours by 52.

As it stands, you have a qualification failure because the plan document (which says he wasn't eligible) doesn't agree with the plan's operations (since he received a contribution). If you do nothing, this operational failure will jeopardize the tax-qualified status of the plan. The IRS provides two ways to fix the failure and restore the plan's qualified status: Change the document to match operations, that is, adopt a retroactive amendment to allow this person to enter the plan earlier than they otherwise would have, and the contribution will remain in their account; or Change the operation to match the document, which would mean pulling the money out of this person's account. Rules for both of these options can be found in the most recent version of EPCRS, rev. proc. 2021-30.

Yes. https://benefitslink.com/boards/index.php?/topic/21009-new-business-first-plan-year/ First, we have to recognize that we are only talking about ER allocations, obviously the deferral portion cannot be any earlier than the adoption date. Next, SECURE added the ability to adopt a new plan after 12/31. The IRS has already commented that a new entity may establish a Plan that uses a full 12 month period for both 415 & 401(a)(17) purposes. Therefore if the Sponsor could setup a new plan to accomplish the same goal, why could they not amend the existing Plan to do the same?

Sounds like the notice has old language. For 2019 and prior plan years, a one-participant plan could file on paper using the 5500-EZ or electronically using EFAST2 on Form 5500-SF and checking the box for "one-participant plan." For 2020 and later plan years, a one-participant plan must file 5500-EZ, but it can be filed either on paper or electronically through EFAST2.

You can test different groups of employees using different methods if you restructure the plan into component plans. Each component has to separately pass coverage testing.

We exclude post-year end comp after severance and thus would not include it. The problem that arises is when 401(k) contributions are made on said comp. It happens infrequently enough that I couldn't tell you how we deal with it but I think we exclude everything from testing and just show the contribution in the financials.