Exclusion of Collectively Bargained

[Guest boetgerinc]

Our firm has recently taken over a plan where the company has excluded all Collectively Bargained Employees. Several of the owners are themselves collectively bargained employees who receive compensation both as Union Employees and as Shareholders in the Corporation. According to regs

1.410(B)-6(d)(2) hours of service performed while a collectively bargained employee should be treated as such and those hours worked as non-collectively bargained should be treated as such. My question is what does this mean. It is easily said that the Shareholders work over 1000hrs for the company as Nonunion workers and therefore would be considered eligible for the 401(k) plan. That being the case, what compensation do I use for purposes of the plan? the document states 3401(a) wages. Does that mean since the employees W-2 wages include the Union wages I can count them? or should I exclude the Union wages as ineligible compensation? Please advise.

[Guest LOhmer]

Take a look at your plan document. We use a PPD document.

Our document discusses a "change in employee status", when you work under an excluded catagory the compensation you earn is excluded.

[This message has been edited by LOhmer (edited 12-30-98).]

[KIP KRAUS]

You seem to have a unique situation, with the owners being union employees. However, you may want to also check the plan document for the definition of "eligible employee" and "covered earning". For instance,are share holders eligible to participate, and is their compensation eligible?

Unless compensation as a share holder is separately idenified and included as eligible earnings in the plan dockment, I'd say you cannot include them in the plan.

[J Simmons]

Resurrecting a thread from the first year of BenefitsLink...

Does anyone have any further insight on this situation?

Is there any way to include in the ER's plan just the owner/CBA EEs and exclude all the non-owner/CBA EEs? I doubt it but running into this situation for the first time, I am hoping there is some obscure rule that allows such a too-good-to-be-true scenario.

[Mike Preston]

Well, I'm not aware of anything directly on point. But this is not a new circumstance and many firms have adopted policies and procedures which are meant to address what they will, and will not do.

At one end, one might decide not to create a plan for anybody because everybody is a member of the union and therefore if the union exclusion is operative, nobody participates in the plan.

At the other end, one might look to the fact that the wages paid in excess of union wages creates a circumstance where those amounts paid are not pursuant to a collectively bargained contract and decide that such an individual can not be excluded from a plan established by the employer which is outside the auspices of a collectively bargained contract.

It is my understanding that the latter is the more widely held view.

Once an individual is a participant, however, it is inconceivable to me that you would be able to ignore any portion of the person's compensation for plan purposes. I don't have time to read 414(s) at the moment, but I don't recall anything in there that would allow one to ignore compensation paid pursuant to a collective bargaining agreement.

What you describe as "too good to be true" is I think the natural extension of the latter position.

[J Simmons]

Thanks, Mike.

It might be Treas Reg § 1.410(b)-6(d)(2) rather than IRC § 414(s) that excludes the union earnings if CBA employees are excluded:

An employee who performs hours of service during the plan year as both a collectively bargained employee and a noncollectively bargained employee is treated as a collectively bargained employee with respect to the hours of service performed as a collectively bargained employee and a noncollectively bargained employee with respect to the hours of service performed as a noncollectively bargained employee.

Since you cannot count the union hours, it seems logical you could not count the compensation for those hours either.

[Mike Preston]

I don't see the same tie in that you do. You are looking at a coverage section (410(b)) and applying it to compensation (414(s)). I don't think you can do that. Look at the 414(s) regs. Is there anything similar in there that would lead you to believe that bifurcation can be or must be done? It has been a while since I've reviewed the entirety of the 414(s) regulations, but I don't recall such a bifurcation. Doesn't mean it isn't in there, though.