Excluding employees

[Guest BruceC]

My understanding is that there are 4 possible statutory reasons for excluding employees from a QRP:

1. Less than 1 year of employment

2. <21 years old

3. EE covered by another QRP through collective bargaining

4. Foreign nationals working for ER ourside of US

My question has to do with part-time employment.

Lets say an EE is working full time and a participant in the QRP, and then drops to part time (<1,000 hrs/yr). May the plan then exclude the EE, allowing the EE to do a rollover on the vested QRP plan balance? Or, after meeting the 1 yr working requirement, must the now part-time EE continue to be non-excluded and eligible for salary deferral/ER contributions if the EE is otherwise eligible for plan participation?

Thanks

BruceM

[Jim Chad]

Quick little addition to 3. You can exclude an employee who is part of a collective bargaining agreement if retirement plans have been part of good faith bargaining, whether or not they are in a plan.

Now, to your question. If they work more than 500 hours they certainly do not have a break in service. They can not be paid out or excluded.

Now my opinion. If they continue to work at all, for example, 10 hours per month, I would consider them still a Participant in every way. Of course, this Plan might have allocation requirements. They may not be eligible for a match or non elective contribution because of a 1,000 hour allocation requirement.

[Guest BruceC]

Jim

Thanks for the reply. To clarify...

If they work more than 500 hours they certainly do not have a break in service. They can not be paid out or excluded.

So if an eligible EE works at least 500 hours/yr, the EE will not be considered to have a break in service and therefore not eligible to rollover vested plan balance and would still be considered non-excluded?

Now my opinion. If they continue to work at all, for example, 10 hours per month, I would consider them still a Participant in every way. Of course, this Plan might have allocation requirements. They may not be eligible for a match or non elective contribution because of a 1,000 hour allocation requirement.

So the 1,000 hour working requirement is for ER contributions? So if an EE drops hours to, say, 700, the EE would still be a plan participant and eligible for salary deferral, but the plan may exclude for purposes of ER contributions (elective or not)?

Thanks

BruceM

[Jim Chad]

Bruce,

I think you have it all correct. Match and Non elective are the only contributions I can think of that you can require 1,000 hours.

Deferral, Safe harbor, and rollover cannot have an hours requirement.

[Guest BruceC]

Bruce,

I think you have it all correct. Match and Non elective are the only contributions I can think of that you can require 1,000 hours.

Deferral, Safe harbor, and rollover cannot have an hours requirement.

Jim

Outstanding! Thanks for the assistance!

BruceM

[SheilaD]

Bruce,

I think you have it all correct. Match and Non elective are the only contributions I can think of that you can require 1,000 hours.

Deferral, Safe harbor, and rollover cannot have an hours requirement.

Jim

Outstanding! Thanks for the assistance!

BruceM

One word of caution. If the plan is Top Heavy then a participant who is active on the last day of the plan year may be eligible for a top heavy contribution regardless of the hours requirement.

[BG5150]

Your plan should have provisions dealing with EE's who are participants and then become part of an excluded class, and those who are in an excluded class then move to an eligible class.

Notwithstanding the above, a person who has satisfied the initial eligibility for the plan ("year of service" may or may not mean satisfying 1000 hrs), does not lose his or her eligibility due to a reduction in hours. However, if the person works less than 500 hrs, I think they can be removed from some coverage testing. And as said before, the person may not be elgiible to receive a match, QNEC or Profit Sharing becasue of those hours.

Generally: once a participant, always a participant. The document should also have a way to deal with rehires, and when the service requirements may have to be re-satisfied.

[thepensionmaven]

If the participant worked 1000 hours in 07, went on maternity leave in 08, came back and worked less than 500 hours in 08, she does not get any employER contribution, but must get the 3% safe harbor. She does not get a profit sharing contribution because she did not work 1000 hours. How does the plan pass coverage or would you just exclude her from the profit sharing contribution, and, on what basis?

[Jim Chad]

First I want to clarify that if they work less than 500 hours they can be excluded from coverage ONLY if they were not employed on the last day.

In your example, coverage testing would be handled the same way as anytime participants are excluded for last day or hours requirement.

Would you like more detail on this?

[thepensionmaven]

First I want to clarify that if they work less than 500 hours they can be excluded from coverage ONLY if they were not employed on the last day.

In your example, coverage testing would be handled the same way as anytime participants are excluded for last day or hours requirement.

Would you like more detail on this?

Yes, please.

[Jim Chad]

If you have 1,000 hours requirement for the Profit sharing, she would not get a PS contrib. But she cannot just be ignored for coverage and nondiscrimination testing.

If the PS is substantial, than the "non-elective Plan" may not pass nondiscrimination testing. Trying to make sense out of this next sentence used to drive me nuts. Here it is...now stay with me...But we may be able to pass nondiscrimination by breaking it apart and passing coverage. Stay with me and I will try to simplify this.

Let's break the non-elective into SH and PS. The SH is a prorata allocation formula. By regulation, this formula is nondiscriminatory and goes to everyone includable in testing. So this passes.

If the PS is the usual prorata with or without permitted disparity it is also a design that is, by regulation, considered nondiscriminatory. So all we have to do is pass coverage on the PS. The lady you mentioned would not be excludable from testing and would not get a PS. So You do the Ratio Percentage test. If you pass you are done. If you fail, you look to see if the doc has a Ratio fail safe provision. If it does you start giving people PS according to the doc until you pass.

If the doc does not have the ratio fail safe provision, you would run both parts of the average benefits test for coverage. If you still fail, you would start giving people the PS in some "reasonable " fashion until you pass.

Then you would prepare an 11(g) amendment do make the document say to do what you just did.

Hope this helps.

[PMC]

Although it doesn't exactly apply in this situation (because the 'EE completed a year of service earlier) but suppose the plan had a 6 month requirement (no hours) and the 'EE became a participant but never completed a year of service. And then the plan was amended to YoS for eligibility, the Plan could keep the 'EE from active participation. Long story short - once a participant doesn't mean always a participant. ERISA Outline book has a good explanation - Chapter 2, Sec. VI, Part E.

[thepensionmaven]

If you have 1,000 hours requirement for the Profit sharing, she would not get a PS contrib. But she cannot just be ignored for coverage and nondiscrimination testing.

If the PS is substantial, than the "non-elective Plan" may not pass nondiscrimination testing. Trying to make sense out of this next sentence used to drive me nuts. Here it is...now stay with me...But we may be able to pass nondiscrimination by breaking it apart and passing coverage. Stay with me and I will try to simplify this.

Let's break the non-elective into SH and PS. The SH is a prorata allocation formula. By regulation, this formula is nondiscriminatory and goes to everyone includable in testing. So this passes.

If the PS is the usual prorata with or without permitted disparity it is also a design that is, by regulation, considered nondiscriminatory. So all we have to do is pass coverage on the PS. The lady you mentioned would not be excludable from testing and would not get a PS. So You do the Ratio Percentage test. If you pass you are done. If you fail, you look to see if the doc has a Ratio fail safe provision. If it does you start giving people PS according to the doc until you pass.

If the doc does not have the ratio fail safe provision, you would run both parts of the average benefits test for coverage. If you still fail, you would start giving people the PS in some "reasonable " fashion until you pass.

Then you would prepare an 11(g) amendment do make the document say to do what you just did.

Hope this helps.

Yes, thanks.

[thepensionmaven]

If you have 1,000 hours requirement for the Profit sharing, she would not get a PS contrib. But she cannot just be ignored for coverage and nondiscrimination testing.

If the PS is substantial, than the "non-elective Plan" may not pass nondiscrimination testing. Trying to make sense out of this next sentence used to drive me nuts. Here it is...now stay with me...But we may be able to pass nondiscrimination by breaking it apart and passing coverage. Stay with me and I will try to simplify this.

Let's break the non-elective into SH and PS. The SH is a prorata allocation formula. By regulation, this formula is nondiscriminatory and goes to everyone includable in testing. So this passes.

If the PS is the usual prorata with or without permitted disparity it is also a design that is, by regulation, considered nondiscriminatory. So all we have to do is pass coverage on the PS. The lady you mentioned would not be excludable from testing and would not get a PS. So You do the Ratio Percentage test. If you pass you are done. If you fail, you look to see if the doc has a Ratio fail safe provision. If it does you start giving people PS according to the doc until you pass.

If the doc does not have the ratio fail safe provision, you would run both parts of the average benefits test for coverage. If you still fail, you would start giving people the PS in some "reasonable " fashion until you pass.

Then you would prepare an 11(g) amendment do make the document say to do what you just did.

Hope this helps.

Yes, thanks.

Changing the eligibility sounds great, but the eligibility is 1 year, so I don't think so. Also, the PS allocation is New Comparability, I don't think the plan will pass the general test if we exclude the participant.

[Jim Chad]

If she is in her own group and she had low comp because she worked a short year, maybe you want to go the other way and give her a relatively big PS to help pass testing.