Carve Out Method

[CJS07]

Plan eligibility is no age, no service requirement and immediate entry.

There is an employee who worked 5 hours a week - (260 hours a year) - and will never work anymore hours than that. Can this person be "carved out" of the ADP Test forever - as long as the employee never reaches 1000 hours in a year? OR Can we only carve this person out of the test the first year and then in following years include them?

THANK YOU!

[Guest James Osterhaus]

This employee will allways be included in the testing but since they will never work 1000 hours in a year, they will allways be part of the otherwise excludable group.

[buckaroo]

I had a colleague who just came over to my desk and said that he thought that the employee could only be excluded the first year. I did some research and I am unable to support my claim that they can be excluded forever. Can someone please point me to where I can show that they can be forever excluded? Regs or even ERISA outline book. Or is it that it does not say it is restricted to one year?

Any help would be greatly appreciated.

[Mike Preston]

The original post wasn't talking about excluding the participant at all. Can you elaborate?

[buckaroo]

Sorry Mike, I misspoke. I was referring to Otherwise excludable employees. I have continued searching the site and I came across a post which is close to what I am looking for. Here is some text from an old post which helps explain what I am asking:

For example, plan eligibility is 3 months of service and the plan uses the elapsed time method of crediting service. Participant has been continuously employed since 1995, but has never completed 1000 hours of service during an eligibility computation period. May the employee be considered an otherwise excludable employee for purposes of the ADP test based on the actual hours method of determining a year of service, or is the participant required to be included because he has completed a year of service based on the plan's use of elapsed time?

Now the response to the above said that the person could be an OEE b/c 410(a)(3)(A) says that a ""year of service" means a 12-month period during which the employee has not less than 1,000 hours..."

I would think that a plan the uses elapsed time would never have a need to track hours, but this seems to indicate that if an employer were to track hours and found there were some employees who never worked 1000+, the could be OEEs forever.

Does this sound correct?

If it is correct and there are plans that use elapsed time and don't track hours (and I assume that most don't), I would think that they are doing the ADP/ACP testing incorrectly. To clarify, if they simply test everyone together, that would be fine. But if they are separating the OEEs, then they are probably not doing it correctly and the testing is wrong. Thoughts?

Last hurdle: The plan is using the hours counting method. By the logic above, the employees who never me the YOS (1,000+) will forever be OEEs.

What do you think?

[Mike Preston]

I think it depends on plan language. The key to the issue is whether the plan credits them for hours in a way that is inconsistent with actual hours worked. For example, if I go along with your hypothetical of a plan using elapsed time for determining eligibility, said plan still might spell out the fact that the plan is crediting hours using one of the DOL equivalencies.

In that case, your hypothetical test is probably not wrong.