excluding nhce

[Draper55]

small traditional db plan with owner and wife and

several nhces..passed with general test.

new nhce employee hired 1/1/12..wish to exclude

from the plan in 2013.

is it better to exclude the employee by classification(will pass

the ratio % test)

or include but make a 0% accrual class. there is no dc plan

so i am thinking if the person is in the plan then they will need

to get the top heavy accrual. Outside of the top heavy issue, the person

is over 40 so is it perhaps risky from an ADEA perpective to give a person

a lesser formula benefit versus excluding them by class in the first place

which would not relate to age.?

[SoCalActuary]

Exclusion allows you to limit testing and accrual issues easiest.

Alternative is to negotiate the pay for total compensation, including pension and direct pay.

[Mike Preston]

I don't think the IRS splits hairs between an excluded employee and an employee with 0% accrual. Both count as zero in the 410(b) test.

As the OP pointed out, though, the latter ends up with a top-heavy accrual and therefore would count in the 410(b) test.

Nobody will give you absolution on ADEA issues as none have been litigated. Who knows when the IRS will decide to make it an issue, even in the absence of litigation. All I'm saying is that elimination by classification that has the same effect as elimination due to age is something that the regs specifically say is not allowed (that is, violates ADEA).

But as of now, in late 2012, it is routinely done all over the country and there is no hint that anybody is going to go to war over the issue.