Standardized Adoption Agreement

[Guest Nabiyah1]

This is a two part scenario:

(I.) It is my understanding that an standized prototype does not allow entitlement or excluded class provisions; However, I have a basic document (with a section specific to the profit sharing plan, under standardized document) that says "Any participant who is actively employed by the employer and all terminated participants who performed less that 501 hours of service during any plan year shall not share in Employer Contributions," written into the document. While the Employer does not have an opportunity to elect an entitlement provision, this seems to be an entitlement provison.

*Would someone please clarify this for me. Basically, I am stuck on the statement that says "any participant who is actively employed."

(II.) It is my understanding the 501 hour requirement for terminated participants as described in Part I. above, is a statuatory exclusion from a compliance standpoint, for example the 410(B) Ratio Percentage Test/Actual Contribution Percentage Test, which allows you to remove anyone in that population from your denominator when your Plan has entitlement, increasing the chances for better results.

However, in the case of a standardized plan that should not have entitlement, why would this language be there? Is this considered and entitlement provision and are the IRC regs. written to include "active employees," as well as terminated? This document also has a determination letter. What am I missing?

Thanks Nabiyah