Exclusion from Testing of EEs < 21/1yr service

[Guest J Samuelson]

SBJPA Section 1459 provides that a plan with eligibility requirements less than the statutory age 21 and 1 year of service can exclude from ADP and ACP all eligible NHCEs who are under age 21 and have less than 1 year of service provided they pass their own test. I'm wondering if this exclusion can be used on a new plan who has statutory eligibility but for the initial enrollment waived all eligibility requirements for employees employed on a certain date. For example, a new plan with a plan effective date of 1/1/98 has eligility of age 21/1 year of service, but allowed all employees employed on 11/1/97 to be participants. Can two sets of tests be done for 1998 in this case?

Thanks.

[LCARUSI]

You're saying you want to separately test the people who are not 21/1 who are in the Plan by virtue of the initial enrollment waiver.

I don't see why not!

[MWeddell]

The SBJPA provision you referred to isn't effective until plan years beginning in 1999. However, for several years the IRS has allowed employers to disaggregate (test separately) employees who otherwise could have been excluded as not meeting the IRC 410(a) standards including age 21 and 1 year of service. Since 1997, this provision has been especially helpful because there usually are no highly compensated employees in the < 21 or < 1 group.

[Tom Poje]

SBJPA test no longer requires testing those ees who are statutory excluded, as this group contains no HCEs. That was one of the real nice things about the deal. If you are an HCE with less than 21 or 1 yr svc you are included with those ees >21 and 1 yr svc.

While it doesn't happen often, that will be an even better deal come 1999 than what we have now

[Guest kp]

How do we exclude the EEs in 1999 who have not met minimum age and service if we elect to use prior year ADP? Do we use the separate ADP tests for 1998 as a weighted average for the two groups as a prior year ADP going into 1999?