ADP testing and excluded class of employees

[eilano]

A 401(k) plan excludes consultants from participating in the Plan. The plan has no coverage issues but regarding ADP testing, can you exclude this class from the ADP test?

[Belgarath]

Yes.

[Mike Preston]

You must.

[eilano]

Can you let me know where this is referenced in the IRS code?

[eilano]

What happens if the plan doesn't pass coverage by excluding a class of employees?

[Guest BobK]

The code cite that you want to look at is 401(k)(3)(A)(ii) which states that you compare the percentages for eligible employees.

You must pass coverage before you run the ADP/ACP tests so you would have to pass that before proceeding.

Hope this helps

[Tom Poje]

if you don't pass coverage then you would have to expand the group by making a QNEC

[eilano]

Are you saying that if we bring in a terminated participant (consultant) to pass the 410(b) coverage for the 401(k) portion, that we have to give this participant a QNEC? If so, how much of a QNEC would be required?

[Guest mjb]

are the consultants leased employees or self employed persons who can be excluded from the plan? Leased employees can be excluded if they do not work for more than one year.

[eilano]

Neither, the consultants are paid W2 compensation.

[Tom Poje]

I am not really saying anything. it is the regs that tell you what to do.

1.401(a)(4)-11(g)(3)(vii) Special rules for section 401(k) plans and section 401(m) plans. (A) minimum coverage requirements.

look at that. even has its own title, fully expecting the possibility of failing coverage in a 401(k) plan!

ok, there are actually 2 paragraphs o ne for 'before 1/1/06 and one for 'on or after 1/1/06'

do you have a copy of the regs handy, or is that enough to get you started?

[eilano]

This is enough to get started. Thanks...