Non top heavy Plan - participant <1000 hrs

[pmacduff]

Just when I think I have it down...

I looked for past threads but cannot find this exact example:

Straight PS Plan - 2002 is first plan we are using cross-testing to increase the HCs. Plan is not top heavy. Forfeitures are being allocated to those over 1000 hours (no last day rule). Participant is deferring and has 849 hours. She is not receiving a forfeiture allocation. She did not terminate. Prior few years she has not received PS or forfeitures because < 1000 hrs. but has continued to defer. Do I have to give her the 5% that the rest of the lower group is getting? The plan passes everything without her. Any help is appreciated!

Patti

[Tom Poje]

the ee does not benefit under the plan (read that 'the nonelective portion') so I would not provide a gateway minimum.

Otherwise you would also have to provide the minimum for all terminees in a 401k as well.

[pmacduff]

Thanks Tom! I was pretty sure but as we all know it's nice to know someone agrees! This example threw me because she wasn't "benefitting" as you say under the non-elective piece, but was benefitting under 401(k) and the plan wasn't top heavy. I deal with so many smaller employers it is rare to find a plan that isn't top heavy at my firm!

[Fred Payne]

Tom:

Please confirm my understanding: Isn't it correct that this ee--who is not benefiting--is part of the coverage group, and as such, is an important factor in determining the NHC Concentration ratio?

Let's say that each rate group cannot pass the Ratio Percentage Test. The Plan needs to then pass the Average Benefits Test, the first step of which is for each rate group to pass the Nondiscrimination Class test. The Safe Harbor Midpoint is the bogey each rate group must exceed to pass the Nondiscrimination Class test. The Safe Harbor Midpoint is determined by the NHC Concentration Ratio. So even though the ee doesn't get a contribution, one must still pay attention to that ee when conducting the tests.

If that participant had been termed, she's still in the coverage group. Right? But if she had had less than 501 hours and had been termed, she would be excluded from the coverage group. Right?

[Tom Poje]

yes to a bunch and maybe to the last point

Active ee, once having met eligiblity, is included in coverage.

treated as includable and not benefiting.

Possibly if the person is active, has a break in service, but continues working, the participation is suspended following the year of break in service, but that depends on the document.

If the participant terminates with > 500 hours they are treated as includable and not benefiting

if they had < 500 hours you could treat them as includable and benefiting - that is your option. if they are an hce it might help your test, but you have to treat everyone equally.

If it is a controlled group, watch out. they are includable and not benefiting under the other company's plan. you can only use the 500 rule for 'participants', and that individual was never a participant in the other plan.