Exclusion of PRN Employees

[Tinman]

We have a plan sponsored by a nursing home that excludes "on call" employees, classified as "PRN". The 410(b) testing passes, however there are concerns that we are not in compliance with 401(a)(4).

Opinions, please!

[Tom Poje]

well lets use a simple example.

10 NHCEs and 1 HCE

formula is 5% of pay.

of the 10 NHCEs, 3 are PRNs and are excluded.

as you indicated, coverage is passed because 7 of 10 NHCEs benefit.

now, if you were to test on an allocation basis you magically have 7 of 10 in the rate group (because 7 of the 10 NHCEs received the same % as the HCE) which would be enough to pass nondiscrim.

As long as you pass coverage AND your formula is a safe harbor formula (e.g. equal % of pay, etc) then you should pass nondiscrim as well.

good thought though, you should always be concerned about both tests.