Exclusions of Employees from Plan

[Hoard1]

Employer is looking to write a Plan which excludes all Key Employees and Employees in certain job clasifications. I've been told that the IRS office in Ohio has been rejecting this approach claiming that you are imposing a defacto eligiblity requirement under 401(a). Does anyone have any thoughts on this or persoanl experience.

[david rigby]

Not sure about that definition.

You can however, exclude HCEs, if that helps achieve your goal.

[LCARUSI]

As long as the job classification isn't service related*, I don't see a problem. You must of course satisfy 410(B).

* If the job classification was employees scheduled to work less than 1000 hours, that would be a problem. You can't exclude on that basis.

[Dowist]

You should look at Reg. ss 1.410(B)-4(B) which defines "reasonable classification established by employer," in connection with the average benefits test of the coverage requirements. It says:

"Reasonable classifications generally include specified job categories, nature of compensation (i.e., salaried or hourly), geographic location and similar bona fide business criteria. An enumeration of ees by name is not considered a reasonable classification."

[IRC401]

If the IRS attempts to disqualify one of your plans for excluding key employees, please let us all know. If you go in under CAP with a proposed correction of giving special allocations to the family that owns the business, please let us know how the IRS reacts.

If you are dealing with MP or P/S contributions, as opposed to 401(k) contributions, try excluding key employees in the allocation section.