Otherwise excludable employees and elapsed time method

[Guest BJ]

In determining "otherwise excludable employees" under a 401(k) plan, must the plan determine whether an employee has completed a year of service using the plan's method of crediting years of service (e.g. elapsed time) or may the plan use the actual hours method?

For example, plan eligibility is 3 months of service and the plan uses the elapsed time method of crediting service. Participant has been continuously employed since 1995, but has never completed 1000 hours of service during an eligibility computation period. May the employee be considered an otherwise excludable employee for purposes of the ADP test based on the actual hours method of determining a year of service, or is the participant required to be included because he has completed a year of service based on the plan's use of elapsed time?

[Blinky the 3-eyed Fish]

Here is section 1.410(B)-7©(3)

If an employer applies section 410(B) separately to the portion of a plan that benefits only employees who satisfy age and service conditions under the plan that are lower than the greatest minimum age and service conditions permissible under section 410(a), the plan is treated as comprising separate plans, one benefiting the employees who have satisfied the lower minimum age and service conditions but not the greatest minimum age and service conditions permitted under section 410(a) and one benefiting employees who have satisfied the greatest minimum age and service conditions permitted under section 410(a). See section 1.410(B)-6(B)(3)(ii) for rules about testing otherwise excludable employees.

410(a)(1) defines the minimum age and service conditions to be 21 and 1 YOS, except that 410(a)(1)(B) allows 2 YOS for certain plans.

1.410(B)-6(B)(3) says that otherwise exludables are defined without regard to 410(a)(1)(B).

410(a)(3)(A) says that a ""year of service" means a 12-month period during which the employee has not less than 1,000 hours.."

So, following this train of logic, it seems as if you can consider this person as otherwise excludable.