Coverage Testing

[justatester]

Here is the plan specifics:

Full timers: Immediately Eligible, Daily Entry

Part Timers: 1000 Hours, Daily Entry

Plan Year: 2/1/11-1/31/12

Safe Harbor Plan: 1 YOS required to receive SH match

Here is my problem, I have 1 HCE that is in my disaggregated population (under 21/less 1-YOS). Hired 4/19/10. Termed 2/2/11.

The plan has an extremely large part time workforce. The ratio test is at 19.53%. We have confirmed all the information with the client and it appears to be accurate.

With a ratio that low, Average Benefits does not seem to be an option.

We typically run the ratio test on an Annual basis. We are looking into running it on a snapshop basis. Is this possible? What date would be "reasonable"?

Is there anything we should be concerned about? In past years, we have not had any HCEs in the under 21/less 1 YOS group.

Any thoughts?

[Tom Poje]

well, of course, the IRS frowns upon a category 'part time employee', and this perhaps is a great example of why.

one question is what is the plan's definition of YOS?

usually this is a 12 month period. Or put another way, if that is what the document says, then just because one has worked 1000 hours, they don't receive credit for a year of svc until the close of the 12 month period. and if that is the case, and there is a 1 yos requirement for safe harbor, then arguably this person failed that.

See example ERISA Outline book chapter 2 section III part B.3

[justatester]

You are immediately eligible for pretax if you are hired as a full-time employee. This HCEs was not eligible for the match. It is the pretax portion of coverage that is not passing.

For part timers, "the last day of the employee's inital 12 month period of employment, provided he is credited with at least 1000 Hours for such period."

Based on this, I need to count all my part-time employees as non-excludable, not benefiting for the pretax portion of coverage. With 1 HCE considered benefiting, it is causing my ratio to be at 19%.

[Tom Poje]

ok, that was unclear from your original post.

in that case, it sounds like you are going to have to do a corrective amendment to bring some NHCEs into the plan and provide a QNEC, ceratinly enough to get above the 20% threshold.

[rcline46]

If it helps testing, the HCE does not have to be treated as an Otherwise Excludible Employee and can be in the main test.

[justatester]

I think that would put my safe harbor status in jeopordy.

How would you suggest I disaggregate? Based on what date range?

[rcline46]

If the code says the HCE is in the main test, how would that mess up the Safe Harbor? The Safe Harbor has its own rules as to who receives it, and not who is in the test.

[Tom Poje]

no no no. I don't think so. at least as far as I recall.

the special rule for HCEs is only applicable to the ADP test, not to coverage. or at least that is what was beaten into me from some meeting or otherwise.

while that may not seem logical, it is the regs we are talking so logic doesn't necessarily apply.

[justatester]

This HCE was not eligible for the Safe Harbor contribution. So I think they belong in the disagg population.

[Tom Poje]

remember, you have 3 coverage tests, not one.

401k, 401m, and nonelective.

and each of these coverage tests is a separate animal from the other, so you could test one using the otherwise excludable option, while not doing do in the other cases.

if its a SHNEC then it is treated as a nonelective

if its a safe harbor match it 401m.

[rcline46]

COVERAGE, not ADP. My Bad. Sorry. Now I have no advice.