excludable employees and the adp test

[Guest dubya]

I am doing a projected 2001 calendar year adp test. On the census, an employee shows up with a date of hire of 7/1/2000. The Plan's eligiblity is no age, 3 months of service, and you enter on the first day of the month following. So, she enters the plan on 10/1/2000.

But for adp testing purposes, can I treat her as "otherwise excludable" up until 1/1/2002? Or do I have to test her along with the rest of the "non-excludables", effective 7/1/2001.

Thanks

[Guest Toni Jo]

If she is eligible for the plan you must include her on the test.

However you can do the test and not include anyone that does not meet the broader eligibility of age 21, 1 year of service, semi-annual entry dates. But you will have to do a second test on the participants that you excluded for that reason. You should be okay as long as there were no highly compensated employees hired during that time.

[Guest dubya]

Thanks Toni Jo. The part about semi-annual entry dates is what I wasn't sure of. I was concerned that those "otherwise excludable" participants get their 21&1, they are no longer excludable once they meet the plans entry date. I see that you're saying regardless of the plans entry date, semi-annual entry is used for determining otherwise excludable.

Also, I thought the rule changed a year of 2 ago in that if you do carve those people out, you no longer have to test them separetely, even if there is an HCE in that group?

[stephen]

I agree with dubya. You no longer have to test the otherwise excludables separately.

[Tom Poje]

the rule did not change, but rather an aditional option was added that you could treat all HCEs as having met 1 ye/age 21 no matter how long they worked.

you can use either option.

[MWeddell]

There are two rules that might apply to separate treatment of those with less then age 21 or less than 1 year of service.

1) Use the old disaggregation rules from the 410(B) and 401(k) / 401(m) regulations and test separately then < 21 or < 1 employees.

2) Use the statutory rule that became effective in 1999 where you ignore the NHCEs < 21 or < 1.

However, the entry date assumption can only be used for #1 (or at least that's what IRS officials have consistently said -- there's no regulations for #2 telling us this level of detail). In dubya's case, he's got to use the entry date assumption if he wants to exclude someone hired 7/1/2000 from a calendar year 2001 test, so method #1 is his answer.