Employer Employs No NHCEs

[lkpittman]

I think I already know the answer to this one, but I'll give it a whirl to see if there are any comments . . .

We have a couple of employers that employ only physicians that have annual compensation in excess of the $100,000. These plans used to pass nondiscrimination/coverage "automatically" because they were considered employers that employed no NHCEs. However, under the newer HCE definition, we end up with NHCEs in some case in some years. For example, let's say a physician is hired towards the end of the year and his compensation for that first "short" year is $60,000. Let's say he becomes eligible the following year--even though he's making $200,000 or more on an annual basis, he's technically an NHCE for that first year of participation. This is really screwing us up for such a plan that previously excluded non-shareholder physicians. Any comments regarding the automatic passing of 401(a)(4) and 410(B) where "no NHCEs" are employed? Does that even work anymore?

[Tom Poje]

if employee was hired toward the end of the year (assuming after 7/1 in a calendar year plan, then even a plan with immediate eligibility could treat the employee as 'otherwise excludable'.

other than that, not much of a way out.

[david rigby]

Might be.

If this is a doctor practice and the doc becomes a 5% owner, then he/she becomes an HCE.

Another method might be to have a one year waiting period for participation, but then you probably don't want to do that.

Or how about participate on the January 1 following 6 months of service?