18 month time frame for statutory minimum calculation?

[Guest 410b]

I got discrimination testing results back from my company's 3rd party testing service.

I thought I understood that "otherwise excludable" employees were determined by looking at actual plan entry dates compared to a mid year plan entry date.

When I questioned why some employees were in this group of employees not meeting the IRS statutory minimum I was told that based on census data the statutory minimum calculation goes back 18 months from the end of the plan year. This is not anything I have read about before and I don't understand it. Could someone help me with a reading reference or explanation about this rule and process?

Examples:

Fiscal year plan, May08 to Apr09. Mid year would be Nov08.

Employees with plan entry dates of Nov 1, 2006 and Aug 1, 2008 and Sep 1, 2008 are being placed in the otherwise excludables of NHCEs who do not meet the statutory minimums. I am trying to make sense of that because it does not match the procedure described in this testers written testing steps.

[Blinky the 3-eyed Fish]

I thought I understood that "otherwise excludable" employees were determined by looking at actual plan entry dates compared to a mid year plan entry date.

You understood wrong....maybe. This issue have never been really decided. I can tell you that many people do not believe that the plan's entry dates are a factor in determining OE employees. Thus in your plan anyone who hasn't worked 18 months could be treated as OE.

[K2retire]

Another way to think about it is IF the plan had the most restrictive allowable eligibility (age 21 with 1 Year of Service) and entry requirements (semi-annual), would those people be in? If not, they are part of the otherwise excludable group.

[Tom Poje]

yes and no on the 18 month rule.

the code (time of particpation) says the entry date after satisfying the reuirements is the EARLIER of the first day of the plan year or 6 months after meeting the requirements....

thus in a calendar year plan someone hired 9/1 would have completed 1 yr on service and would enter 1/1 not 3/1 which would be 18 months. someone hired 3/1 on the other could be made to wait until 9/1 of the following year which is indeed 18 months.

Otherwise, yes, at this time there are no hard and fast rules whether the plan's entry dates apply. you run what you feel comfortable with and can justify.

some documents are silent. I have one that defines OEs as a particpant in the plan who

1. has not satisfied the maximum age and service requirements set forth in Code 410(a)(1)(A) AND

2. has not reached such Participant's Hypothetical Entry Date.

[Guest 410b]

Thank you, I had totally forgotten about this approach to the dates.

My first issue was that what I am being told they did does not match their written procedures describing how they conduct the tests. I will get that clarified.

Another question on the dates using the approach described above. Are the plan entry dates based exactly on the hire dates, or are they always the first of a month?

Say in the example above, if the hire date was 3/14 instead of 3/1 and we were going to the latest possible date, would the entry be 9/14 or 10/1?

[Tom Poje]

I hold for 9/14.

[Mike Preston]

And I admit to being totally confused. 410b states that the plan year is 5/1 to 4/30. Yet Tom provides an example based on a calendar year plan just to confuse me (and he does a marvelous job).

Then, at the end, 410b uses an example of somebody hired 3/14, which to my way of thinking would come in on the entry date next following 3/14/x+1, which would be 5/1, wouldn't it?

Why hold for 9/14?

I will crawl back into my shell now.

[Guest 410b]

Hi Mike,

The permutations make my head swim a bit but here's what I think Tom told me in the previous posts,

thus in a calendar year plan someone hired 9/1 would have completed 1 yr on service and would enter 1/1 not 3/1 which would be 18 months. someone hired 3/1 on the other could be made to wait until 9/1 of the following year which is indeed 18 months.

Thus in your plan, someone hired on January 14, 2008 would have completed one year of service on January 13, 2009 and would enter the plan (for testing purposes) on May 1, 2009; not July 13, 2009 which would be 18 months. Someone hired July 14, 2008 on the other hand, would complete 12 months of service on July 13, 2009 and could be made to wait until January 13, 2010 which is indeed 18 months.

With the 14th day instead of the 1st day, his reply tells me that his view is, for this "18 month" methodology, there are no first's of months dates that are considered. You either hit the beginning of a plan year and use that, or you go out to the exact 18 month date.

[Mike Preston]

As long as you apply the rules to the actual plan year (5/1-4/30) correctly (as you have done), then I agree with Tom's description.

However, there still is some confusion about semi-annual entry dates.

I don't think you have specified what your plan's actual entry date provisions are. Are they semi-annual? Or does your plan provide less restrictive entry dates? My presumption is that you must have less restrictive entry, of course, or else you wouldn't have any non-excludables.

In think, solely for purposes of counting bodies (that is, either an individual is excludable or not excludable), one can use the semi-annual entry date provision as a substitute for the somewhat more complicated "earlier of" the first day of the next plan year or the date that is 18-months after hire. Many plans are written with semi-annual entry dates just to "keep it simple." That is, all employees are treated identically as far as eligibility goes such that somebody hired in the first half of a plan year waits the same number of months as somebody hired exactly 6 months later (in the second half of the plan year).

[Guest 410b]

My third party testing service’s manual says tests are conducted in the way you are discussing. I had a question about why a participant was disaggregated in the test. Here is what I saw when I asked the question (name-dates changed):

Testing for plan year ended 04/30/09.

Plan participant, Joe Ransom. Birth date 05/09/1987. Hire date 10/28/2005. Actual plan entry date 11/01/2006.

Me:

Based on my understanding of the rules, Joe Ransom is incorrectly recorded as an NHCE.

(I meant to say, incorrectly recorded as an NHCE in the group of employees not meeting statutory minimums.)

Testing service:

Based on the census dates we have on our testing system, the statutory minimum calculation goes back 18 months from the end of the plan year so the population is correct.

Me:

… I would also like to see the specific computation for Joe Ransom.

Testing service:

The testing system uses a default of semi-annual entry dates when it applies the statutory minimums. Joe Ransom would not have been 21 until 5/09/2008 and since the plan year was 5/1/2008 - 4/30/2009 he was newly eligible in the plan year being tested and fell into that 18 month period prior to the last day of the plan year. Therefore he was considered part of the disaggregated population.

Me – to myself:

??????????? and forum post.

[Mike Preston]

See, I just knew there was a part of this thing that was hiding just beneath the surface. It is the age eligibility, not the service eligibility that has your testers confused.

In effect, you treat the person's hire date as being the day of his/her 20th birthday. In this case, that would be 5/9/2007.

In that case, with a 4/30 plan year end, we find that 18 months after 5/9/2007 is 11/9/2008. Hence, this individual is not excludable as of any measurement date after 11/8/2008, such as your measurement date of 4/30/2009.

Your testers are confused.

All you need to do is escalate the issue to somebody above the level that you are currently dealing with.

If they provide you with a cogent response that indicates something different from the above, please post back.