ADP test - can employee with zero compensation be excluded?

[John A]

If a plan participant is on unpaid leave of absence at the beginning of a plan year, terminates employment during the plan year, and receives no compensation during the plan year, is the participant included or excluded in ADP testing?

[Guest SteveR]

A "leave of absence" prevents a participant from incurring a forfeiture break-in-service and/or having to resatisfy eligibility requirements upon return to service.

Typically, to be included for the various compliance test, the participant would need to have "earned" income for the plan year in question.

I would not include this particpant for testing purposes.

[actuarysmith]

I would concur with this analysis.

[Kirk Maldonado]

What deferal percentage do you get when you divide $0 deferrals by $0 of compensation?

My computer doesn't like it when you divide by zero!

[actuarysmith]

They are not included, therefore there is no zero divide problem.

[Guest Harry O]

The 401(k) regulations say to look at the 410(B) regulations for purposes of determining who is an employee for purposes of the ADP test. The 410(B) regs define an "employee" as an "individual who performs services for the employer." If the individual performed no services during the year due to the LOA, I think you have a good argument they aren't included in the ADP test.

[AndyH]

At last year's ASPA annual conference (maybe it was 2000?-I don't have my Q&As with me), Jim Holland said a person with no compensation should not be in any nondiscrimination tests (by any I mean a(4),410(B), ADP, ACP). The words I recall were "Not a zero. Not in the test".