ADP Test Lay offs

[PFranckowiak]

A company laid off workers in Dec 2008. They have a policy that is the employee is not rehired within 90 days they are considered terminated and give a termination date at that time. I have about 10 partipants that are in this state. They have March 2009 termination dates, no hours, no compensation for 2009. Since they could not defer since they didn't work, can I keep them out of the test or do I have to put in with zero compensation?

Thanks

Pat

[J Simmons]

A company laid off workers in Dec 2008. They have a policy that is the employee is not rehired within 90 days they are considered terminated and give a termination date at that time. I have about 10 partipants that are in this state. They have March 2009 termination dates, no hours, no compensation for 2009. Since they could not defer since they didn't work, can I keep them out of the test or do I have to put in with zero compensation?

Thanks

Pat

I think you exclude them from PY09 testing, using the same rationale for why owner's family members that were once eligible for the plan but do not have any compensation during the PY being tested should not be included.

[fiona1]

What about coverage testing? I agree that they could be excluded from ADP/ACP - as they didn't have the opportunity to defer on account of no compensation.

But I don't see how you can keep them off a coverage test, assuming they don't fall under a bargaining or non-resident alien exclusion.

And if they are included on the coverage test, how do you determine their benefiting status? I think you can make an argument that they could be "deemed" to benefit, as they would have had the opportunity had they earned compensation. But I think you can also make the argument that they could be "not benefiting". The fact that they were not paid any wages means that they are not allowed to benefit under the plan.

What say you?

[Lou S.]

What about coverage testing? I agree that they could be excluded from ADP/ACP - as they didn't have the opportunity to defer on account of no compensation.

But I don't see how you can keep them off a coverage test, assuming they don't fall under a bargaining or non-resident alien exclusion.

And if they are included on the coverage test, how do you determine their benefiting status? I think you can make an argument that they could be "deemed" to benefit, as they would have had the opportunity had they earned compensation. But I think you can also make the argument that they could be "not benefiting". The fact that they were not paid any wages means that they are not allowed to benefit under the plan.

What say you?

But aren't they all terminated with 0 hours worked? And can't you exclued terminated with fewer than 500 hours from the testing as excludable?

I have a similar issue with a guy who was out all of 2009 on disablity leave. He has no comp or hours and is not yet terminated. I ssume you would leave him out of the 401(k) test too. But what about top heavy? - This plan is going to be top-heavy eaither way so it is moot in this case but this is the first year (2010) where they will be top-heavy in a long time and they are like 62% if I exclude this guy out of leave then it changes to like 70%.

[fiona1]

You're referring to the "Certain terminating employee" exclusion in §1.410(b)-6(f). In order to use this exclusion:

(iii) The plan has a minimum period of service requirement or a requirement that an employee be employed on the last day of the plan year (last-day requirement) in order for an employee to accrue a benefit or receive an allocation for the plan year,

Let's just focus on the coverage test for the K portion of the plan. You definitley can't have any certain terminated employee exclusions on the K coverage test.

So that gets back to the original question - regarding an employee is eligible for the plan, but earns no compensation and terminates in the middle of the year.

Included in the coverage test but considered "deemed" to benefit? Included in the coverage test but considered "not benefiting"?