Last Day/1000 Hours Rule

[justatester]

Coverage question:

For profit sharing contributions, if the plan has a last day/1000 hours requirement, if a participant terms with less than 500 hours, they can be counted as "excludable".

Does the same hold true for matching contributions?

[Tom Poje]

1.410(b)-6(f) if the person does not 'benefit' in any way (receives a contribution or forfeiture) then they can be treated as excludable for coverage. A person who defers 0 and receives a 0 match is considered benefiting, unless there is an hours or last day requirement. this is optional,as long as you treat all people equal. If you had HCEs that terminate with less than 500 hours and receive no benefit, it might help to include them.

If plan is a safe harbor with a 3% SHNEC, than no matter what the hours aor last day rule, since the person received they would be benefiting for nonelective purposes.

a person must actually be eligible to participate. in other words, if this was controlled group testing and the person terminated from plan B with less than 500 hours, you could not exclude the person from coverage testing unless you were aggregating the plans.

[justatester]

ok...let's assume that for 2010 plan year, the plan has no age/service requirement to to be eligible for pretax or match. However, for match, you must work 1000 hours and be employed on the last day. A NHCE who was hired 2006 would be otherwise eligble for the match. However, the person terminated on Jan. 15, 2010.

I am trying to determine for coverage purposes would they be "excludable" because they did not work more than 500 hours. Or, would be non-excludable not benefiting?

Hope this make sense...

[Tom Poje]

ok, you said no age/svc requirement for deferal or match, but then said 1000 hours for match. I will assume you mean last day/1000 hours for profit sharing.

for coverage you have 3 tests:

401k - once enter the plan you can always defer, so are always considered benefiting even if you don't defer. the only exception would be a plan amendment excluding a group of people from futire participation, in which case for coverage you would be includable and not benefiting

401m - same as above - includable and benefiting if there is no svc, hours - last day provision. doesn't matter whether you dfere or not.

nonelective - doesn't matter if eligible for deferal or match. if quit with less than 500 hours and there is no way you could get a profit sharing, you can be excluded.

again, its 3 different tests (or as many as 6 if you had immediate eligibility and tested otherwise excludables separately