Entry Date for Otherwise Excludable Employees

[LarryDavid]

Quick question on using the Otherwise Excludable Employees option in my coverage/nondiscrimination testing:

I'm testing an aggregated plan with immediate eligiblity, and I want to carve out those employees not satisfying the statutory 21/1 eligibility requirements. My understanding is that, when applying the 21/1 eligibility, you also have to apply semiannual entry dates. So if I'm performing a 12/31/09 test, my disaggregated group would include anyone hired after 7/1/2008. In this case, that group unfortunately includes a couple of HCE's that were hired in the 2nd half of 2008 and still made over $105,000.

So my question is: Can I use a different entry date when applying the 21/1 eligibility? Specifically, can I use immediate entry after attaining 21/1 and therefore only include ee's hired after 12/31/2008 in my disaggregated group (and therefore guarantee they'll all be NHCE's when testing the 2009 plan year)?

[rcline46]

Under code, HCEs are not disaggregated. Under regs HCES are disaggregated. YOur software should give you the choice.

[LarryDavid]

My software is simply my own excel spreadsheet that I've set up, so I guess the choice is up to me. But it sounds like I should still use the 7/1/2008 entry date, and if any HCE's fall into that group I should then not include them with the disaggregated group? For some reason I thought methodology was okay for ADP/ACP testing but not 410(b) and 401(a)(4)?

[Tom Poje]

The IRS has promised guidelines in regards to otherwise excludables, but as of yet we are still waiting.

there are 3 possible choices:

1. use plan entry dates

2. use 1/1 and 7/1 (assuming calendar year plan)

3. use 1/1 and 18 months after date of hire.

as for the ADP test (NOT coverage)

you are permitted to use 'carve out' - that is treat all HCEs as having met the 1 year wait

[LarryDavid]

Thanks Tom. So if I were to use option 1 (Plan Entry Dates), in this case the "Plan" is an aggregated plan comprised of individual plans with multiple eligibilities, the most lenient of which happens to be immediate (and therefore is the applicable eligibility for the aggregated plan), I can use immediate entry in my 21/1 exclusion and only exclude ee's hired on or after 1/1/2009?