Participant Count

[Guest DTrom]

Assuming a calendar year plan,

An employee is a participant in the 2003 plan year and terminates prior to the end of the plan year, without an account balance.

The employee is subsequently rehired after the 2004 plan year begins, and as per the document provisions becomes a participant as of the date of hire.

Since the participant was not actually employed on the first day of the 2004 plan year, are they included in the beginning count for purposes of the 5500?

Thanks!

[Archimage]

No, I would not include them in the beginning participant count.

[Guest DBtech]

They would be included as of 12/31/2003, if they did not incur a "break-in-service." Look to your plan for the definitions--usually a break year is a year in which the participant works less than 501 hours.

[Guest DTrom]

DB...

The break in service is 501 hours.

So assuming the participant terminated 12/1/2003 with no break in service, and was rehired 2/1/2004 and earned over 500 hours of service in 2004...

Would you then include this participant in the beginning count for the 2004 plan year since there was no break in service, even though they were not actually employed on 1/1/2004?

Thanks.

[WDIK]

They would be included as of 12/31/2003, if they did not incur a "break-in-service." Look to your plan for the definitions

I agree that you should consult the plan document to determine the employee's participation status, however, I'm not sure that it necessarily ties in to the break-in-service requirements.

For example, if the plan has 1000 hour/last day requirement to receive an accrual, the participant did not meet that requirement (even though there was no "break-in-service"), and the participant's account was entirely paid out prior to the end of the year, I would not consider that employee to be a participant as of the plan year end.

Also, many plans contain language that specifically applies to terminated participants with a vested interest of $0. Such language may result in a deemed distribution as of the termination date for such a participant. Again, I would not consider that employee to be a participant as of the plan year end.

[E as in ERISA]

This is a 401(k) plan and the participant was eligible but not actually contributing during the first part of the year, then terminated during 2003 without a balance, and then was re-hired in Feb 2004?

[Guest DTrom]

Katherine,

That is correct. The firm is a landscaping firm with numerous hire/fire/rehires.

[Guest DBtech]

As a last resort, read the 5500 instructions:

Active participants include any individuals who are currently in employment covered by a plan and who are earning or retaining credited service under a plan. This category includes any individuals who are eligible to elect to have the employer make payments to a Code section 401(k) qualified cash or deferred arrangement. Active participants also include any nonvested individuals who are earning or retaining credited service under a plan. This category does not include

(a) nonvested former employees who have incurred the break in service period specified in the plan or

(b) former employees who have received a "cash-out" distribution or deemed distribution of their entire nonforfeitable accrued benefit.

[BFree]

DBTech - how do you square those instrutions with your first post?

At January 1, the person in question is not an active participant. At January 1, this terminated person is not eligible to make salary deferrals.

[Guest DTrom]

I appreciate everyone's input.

This question arose because our software system was handling this scenario inconsistently. If the rehired participant was still employed on the last day of the current plan year the system added them into the beginning count. If the rehired participant was again terminated before the current plan year end it did not add them into the beginning count.

A call into the software system's customer service revealed that this is a gliche in their system but could only provide an opinion that the rehired participant should not be included in the beginning count (again under the assumption that they terminated in a prior plan year without an account balance, and was rehired after the start of the current plan year).

We are leaning toward not counting in the beginning count. Fortunately this plan is well above the count needed for an audit, but for those close calls it would be nice to know for sure.