When determining who is an excludable employee under 410(b), which com

[John A]

In a plan that covers only Salaried employees, can Hourly employees be excludable due to 500 hour/ last day rule?

If an Hourly employee has satisfied the age/service/entry date requirements for the plan, but terminates employment with less than 500 hours in a plan with a last day requirement for a contribution, is the employee excludable?

The rule seems to be that the 500 hour/ last day rule can only be used to make an employee excludable if the employee does not get a contribution "solely" because of the failure to meet one of those requirements. Since the plan described above would cause the employee to not get a contribution because of being Hourly, that would seem to indicate the employee should be includable.

However, some sources seem to indicate that the 500 hour/last day rule can be applied before considering any other reasons like employee classifications.

[Richard Anderson]

One of the requirements in order to use the terminated with less than 501 hours exclusion is that "The employee fails to accrue a benefit or receive an allocation under the plan solely because of the failure to satisfy the minimum period of service or last-day requirement".

If the employee is a member of an excluded class (such as hourly) then that person did not meet the above requirement, therefore can not be excluded from testing because they terminated with less 501 hours.

[Guest]

or put another way, the individual must have actually been a participant. Hourly people will end up being treated as includable and not benefitting. see example 3 under 1.410(B)-6(f) oh ugh, thats disgusting, I knew right where to look without looking it up.

It is an example using 2 plans - one salaried one hourly so it fits your situation exactly. (ok, so maybe you have to pretend you have a plan for hourly. They could have improved the wording in the example by saying the plans are not permissively aggregated for coverage testing purposes, but what the heck.

[John A]

Thanks Richard and Tom. I don't know how I missed Example 3 - I thought I had read that. It's nice to have a clean, black and white answer once in a while - every issue I've looked at recently has seemed gray.