Participant Exclusions

[amcorson]

Let's say you designed a CB plan and for the first 2 PYs you had an allocation group of "All Other Employees" getting $0. Then in year 3 before benefits are accrued you do an amendment to exclude those in the "All Other Employees" group by job category. All coverage, 401(a)(4) etc passes under both scenarios.

Basically they are going from being a "participant" getting $0, to not being a "participant". A popular book shows an example of participants in a DB plan being excluded by category after they were participants and states that their participation in the plan is "discontinued". Of course there are no cutbacks, it is all in the future.

Going forward are these "Excluded Participants" truly not "participants" now?

I have the above example from a book and I have someone taking the other side. The other side is they cannot be excluded once they enter and have to continue to be considered a "participant" going forward due to anti-cutback rules.

Any thoughts?

[SoCalActuary]

Well, lawyer up.

I don't understand why a plan would allow entry into a plan with a zero benefit. Much better to exclude them from coverage either by name or job class, and only add them if needed.

[John Feldt ERPA CPC QPA]

Definitely better to exclude than to provide a $0 formula.

If not excluded and if the plan is top heavy, they would be entitled to top heavy minimums, regardless of the zero formula right (assuming the plan is not frozen)?

[amcorson]

Agreed, it is better to exclude from the get go. I am trying to get clarity on excluding participants via amendment going forward after they have already entered the plan. Thanks.

[John Feldt ERPA CPC QPA]

Assuming all other coverage, participation, and benefits testing requirements are met, you can prospectively exclude them.

Be careful not to exclude them in a discriminatory manner, such as "all men over age 45 are excluded effective July 1, 2011" - you get the idea. These people with zeroes will still be counted in your denominators or in your people counts for 410(b) and 401(a)(26), so be sure that 410(b) and 401(a)(26) are satisfied.