410b test for <500 hour non term ee

[Guest billy bong]

our standardized prototype uses a the safe harbor requirement of 501 hours to receive a contribution for ALL employees rather than the employed on last day (regardless of hours) requirement.

My question is, in a non-standardized plan, with a last day rule and 1000 hour requirement, can we consider those employees who worked <501 hours but NOT terminated to be excludible in the 410b test? We have always used this requirement when determining who is excludible and not excludible since it "corresponds" to our standardized prototype.

[LCARUSI]

Yes, you can exclude your sub501 group from the testing because it is an allowable exclusion under 410(B).

Your standardized prototype uses this eligibilty to guarantee compliance with 410(B).

The rules for the 410(B) testing are not dependent on the type of plan document you use.

[MWeddell]

If you are performing coverage testing, then you can exclude anyone with less than 1 year of service, so an employee who never earned 1,000 hours during an eligibility computation period (which at least initially is based on the person's hire date, not the plan year) may be excluded.

If you are talking about 401(a)(4) general discrimination testing, then you first want to see if you meet a safe harbor, which permits 1,000 hours in the current plan year and employment on the last day of the plan year if you're allocating in proportion to pay and meet the other requirements. If you have to use general testing, then you'll be able to exclude only the < 501 hours crowd.

[Kathy]

I think I have to disagree with LCARUSI - I believe you can only exclude employees with less than 500 hours who terminated during the year - if the employee is "part-time" and earned less than 500 hours in the year but is still employed on the last day, (and they are otherwise eligible under the terms of the plan but miss a contribution soley due to lack of 500 hours) they are counted as not benefitting under the plan and therefore hurt your 410(B) test.

[Lynn Campbell]

I think both L. Carusi and Kathy agree, but it depends if the EE has ever joined the Plan. If the EE has actually joined the Plan at some point, then we have to count them for 410(B) if still employed at end of year regardless of hours. However, if they have never joined the Plan, they are not considered.

[Tom Poje]

assuming this is what the question asked:

I have an ee who has been a participant in the plan. This year he did not work 500 hours, so fails to get a contribution.

he is treated as Includable and not benefiting for 410(B).

if plan passes 410(B) you are finished.

if plan fails 410(B), but is top heavy, then ee can be treated as includable AND benefiting, but then you need to follow general nondiscrimination guidelines. (e.g. you now have 2 formulas - x% for most employees and 3% for top heavy people)

by the way. terminees with less than 500 hours is an option. if you want to you could include them. if one of them was an hce, it might help.

you can only exclude terminees

[LCARUSI]

To Tom Poje (or anyone else who can help) -

What do you mean by the following excerpt from your posting:

(e.g. you now have 2 formulas - x% for most employees and 3% for top heavy people)

Thanks

[Guest billy bong]

yes, my question was with the premise that the ee was a participant. that is a given since he would not be factor in coverage if he were not a participant. another thing i came across was if the document uses the break in service rules, then, the ee, if he did not complete >500, AND was employed on the last day, IS EXCLUDIBLE but in the followng plan year. Of course, the following year, if he meets the requirement for eligiblity, then he will be a participant retro, and the NOT BE EXCLUDIBLE. i am still puzzled how our standardized document can require 501 hours to receive a contribution regardless of status of employment at end of plan year. it appears that the only requirement for a non terminated ee is to be employed on the last day.

[This message has been edited by billy bong (edited 12-22-98).]