Terminated participant and no last day rule

[dmb]

Plan provides that once an employee becomes a participant there are no restrictions on receiving an allocation of the employer contribution. No hours requirement, no last day rule. Calendar year plan, participant terminated 2/15/10 and worked less than 500 hours, but receives an allocation. Is this participant excludable from 410(b) and 401(a)(4) testing?? Thanks.

[Tom Poje]

not excludable. one of the requirements under the terminee rule is:

1.410(b)-6(f)(i) the employee does not benefit under the plan for the plan year

and see also (iv)

this person is also eligible for any gateway.

[Logan401]

What if they did not receive an employer allocation, but deferred?

Would that still be considered benefiting?

[Tom Poje]

when you perform coverage testing, you have 3 tests

1. 401k

2. 401m

3. nonelective

so for deferral purposes, since the person could have deferred he is considered benefiting whether or not he deferred. you cant have an hours or last day rule for deferrals.

for 401m if there were no hours for the match, they would be benefiting even though they didn't defer and therefore didn't physically receive a match. doesn't matter if you termed or not., because they could actually receive a match.

for nonelective, since they received no nonelective so they are not benefiting. if they termed with less than 500 hours they could be excluded from that test (though that is an option) if its HCEs it might help to include those bodies.