Statutory Exclusions

[Guest Kemily]

Say you have eligibility requirements of 3 months/21 years and quarterly enrollments. If you want to use statutory exclusions for their discrimination test, can you exclude an employee who was hired in 1999 and never worked 1000 hours? Or do you go by the hire date and you can't exclude the employee? Thank you!!

[Tom Poje]

if the ee never worked 1000 hours, then he never completed a year of service (1000 hours in a 12 month period). therefore that person would be treated as an 'otherwise excludable' employee.

Think of it thisway. If the plan had a one year wait/ age 21, would the person have entered? If your answer is NO, then that person is 'otherwise excludable'.

The one exception to that rule would be an HCE, who, for purposes of the ADP test, would be included in the test. This probably wouldn't happen with someone working less than 1000 hours, but if it was a child of an owner it could. Note: this exception is for ADP/ACP testing only, not for coverage.

A comment on 'terms' used.

Statutory excludable - by law (or by 'statute') a person could be excludable id they did not complete 1 yr svc / age 21 (and next entry date)

for testing purposes, it would be better to use the term 'otherwise excludable'. this refers to a person who is in the plan, but would have been 'excludable' if the plan had a more stringent elegibility.

[Guest Kemily]

Thank you for your response. I was always told to go by the hire date to determine a year of service. Would anyone know where in the regs it states the 1000 hour requirement?

[Guest Bob K]

Tax Code Section 410(a)(3)(A).

Hope this helps

[Theresa Lynn]

I am confused--you want to exclude the person for testing even though he entered the plan because he had 3 months of service?

Does the plan "count" hours, use an allowed equivalency, or use elapsed time?

Does the plan state that eligibility is limited to someone who has been credited with a year of service (or expected to have a year of service and let them in at 3 months)?

[Tom Poje]

It is not a matter of excluding someone from testing (or I hope that is not what is implied)- it is a matter of testing the otherwise excludables separately. Usually there are no HCEs in this group, so I guess it seems like you are excluding them from testing.

In the case of the ADP / ACP test (or at least one option), is to treat all HCEs as having met the statutory requirements. in that case the otherwise excludables are in a test by themselves, and the test automatically passes, so again, it is as if you have 'excluded' them from testing.

(There is no such free ride in regards to top heavy, by the way)