CNB CONSULTING

Thanks for the thoughts. Agreed regarding the plan document for allocation purposes. However, most of the plan documents I read are rather vague on this last part about staying a participant. Even the basic plan document language generally states that once an employee earns a year of service, they no longer are part of that excluded class. But, does that mean forever? At least with the 403(b) guidance, they make it clear that once in, always in. I can't find an equivalent for 401(a) plans.

Paul, Thanks for the QAB! I really appreciate it. I would agree that the employee in my example would not receive an employer allocation for 2022 since that person does not become a participant until 2023. I think I also agree with your analysis regarding maintaining eligibility even if that person continues to be categorized in the excluded class. I just can't find any source to prove this out. Under our assumption, this would mean the employee would be eligible to make employee elective deferrals in 2023 (assuming a 21 and one year of service requirement) even though that person may have under 1,000 hours during the year and be still classified as a Seasonal Worker. So, once eligible, always eligible, much like the 403(b) IRS Notice 2018-95.

Not sure if this has been asked before. What if an excluded class employee (let's say person categorized as a Seasonal Worker) happens to work 1,000 hours during the plan year. So, hired January 1, 2022 and has 1,000 hours by December 31, 2022. Assume plan document has fail safe language so that this employee becomes eligible upon 1,000 hours in plan year. According to the intent of Quality Assurance Bulletin FY-2006-3 (which I can't find anywhere online), this person would be eligible, but when? In other words, if the employer makes an employer contribution for 2022 plan year, would this Seasonal employee be eligible? How long is this person eligible? Under 403(b) there is a "once in, always in" provision, but I can't find the same for a 401(a) plan. If this person continues to be classified as a Seasonal Worker in 2023 and beyond, what happens if this person works under 1,000 hours in any future year? Thoughts are greatly appreciated!

You all bring up valid points. The interesting side note is that when determining related persons under section 144(a)(3), the controlled group rules substitute "more than 50%" for "at least 80%" described in section 1563(a). This would cause more organizations to be included with the recipient organization when combining the gross receipts. In any case, just wondering if I was missing any old regs or case law that spoke to this process.

Question regarding the management group analysis under 414(m)(5). I have four entities which none qualify as parent/sub or brother/sister controlled group members amongst each other. One of the entities definitely provides management functions for the other three, but none of the three recipient organizations provide more than 50% of the gross receipts to the potential management organization. I know that organizations related to the recipient organization are included as part of the entire group, but I believe that analysis is scrutinized after the determination of whether a management group even exists. In other words, if I am incorrect and the three recipient entities above were combined prior to the management group analysis is performed, then the combined gross receipts of all of these companies would be above 50% and thus constitute a principal business. I don't think that is the case, but I wanted to hear from others.