Excludible employee

[Guest erepper]

I am trying to exclude (from both the numerator and the denominator) an employee who worked less than 500 hours and terminated during the year. My problem: This is a 3% NEC Safe Harbor plan so he is benefitting. My understanding of the exeption for less than 500 hours is that they cannot be "benefiting" under the plan. Are there any exemptions that I am not aware of that allows this person to be excludible from the plan for the determination of coverage and nondiscrimination. Under 401(a)(4) rate group testing he is causing a rate group to fall under 70% AND, becuase he is 72 years old, he is killing my Average Benefits Percentage test. An exception in either the rate group testing under 401(a)(4) to get all the rate groups over 70%, or, an exception under the average benefits percentage calculation which will reduce my rate group testing threshold would be helpful.

[rcline46]

This reply costs my clients - component plans.

[Guest erepper]

This reply costs my clients - component plans.

Thanks - I tried that. This cost my clients as well (due to sophistication). The problem I have here is that component plans doesnt get him out of the denominator. In this case the denominator for the NCEs is going to be 6 for my rate group testing regardless of whether or not he is in a separate component plan. The rate group that is a problem is (1/6) / (2/7) = 58%. If I could exclude him from coverage entirely, it would be (1/5)/(2/7) = 70%.

Thanks anyway.

[austin3515]

IF he's benefitting he's not excludable. REad the fine print of the regs, and you'll see that the Term w/ less than 500 hours applies only to individuals NOT benefitting.

[Guest erepper]

IF he's benefitting he's not excludable. REad the fine print of the regs, and you'll see that the Term w/ less than 500 hours applies only to individuals NOT benefitting.

Yes! I was hoping somebody would know of some exemption to that. Thanks,

[Steelerfan]

IF he's benefitting he's not excludable. REad the fine print of the regs, and you'll see that the Term w/ less than 500 hours applies only to individuals NOT benefitting.

Yes! I was hoping somebody would know of some exemption to that. Thanks,

It would appear that you could exclude a former employee if he was previously excludable, can't tell if this applies to your situtation.

See Reg §1.410(b)-6. Excludable employees

(3) Previously excludable employees. --The employer may treat a former employee as excludable if the former employee was an excludable employee (or would have been an excludable employee if these regulations had been in effect) under the rules of paragraphs (b) through (g) of this section during the plan year in which the former employee became a former employee. If the employer treats a former employee as excludable pursuant to this paragraph (h)(3), the former employee is not taken into account with respect to a plan even if the former employee is benefiting under the plan.

[austin3515]

Just looked this up, and it applies only to DB plans. Alos, according to the EOB, former employee is anyone who did not work at all in the plan year. Apparently, DB plans must allow providing additional benefits to retirees? Not my forte...