Applying the Otherwise Excludable Rules

[justatester]

When applying the otherwise excludable rules, there are 3 ways to apply it. (Statutory, Plan Entry, or Beg of Year/6 monts)

Let say in year 1-The ADP & Coverage tests were completed using the Statutory option for applying the OE rule. Plan passes ADP & Coverage.

The plan uses prior year testing.

Year 2: Plan still uses prior year testing, so the average used for ADP is based on Statuory, but if in year 1 the plan had used the plan entry method, the NHCE ADP average would have been higher. Would you need to go back and run coverage in Year 1 using plan entry to be able to use that NHCE ADP average in Year 2?

[buckaroo]

I do not see any replies to this topic so I thought I would repost with my related issue. We are being questioned regarding the use of plan entry dates vs. statutory entry dates for disaggregation for coverage and carve out of ADP testing. Specifically, the attorney is saying something along the lines that in order to use statutory entry dates, something needs to be in the plan document to this affect. My recollection is that 5 - 10 years ago, an IRS rep made some type of off-handed comment at an ASPPA annual conference to this effect, but I thought that it was just a comment. Can anyone point me to more information on this topic and what needs to be done (if anything) to continue to use statutory entry dates for coverage and ADP carve out?

FYI - I have already read through 410(b)(4)©, § 1.410(b)-6(b)(3), § 1.410(b)-7©(3), and 410(a)(1) - 410(a)(4) and it is not clear.

[austin3515]

I would think the document would have to be worded in such a way that you have the flexibility. The document certainly could indicate use of plan entry dates.

[austin3515]

Corbel's definition clearly leaves the door open:

(l) Disaggregation and otherwise excludable employees. Notwithstanding anything in this Section to the contrary, the provisions

of this Section and Section 12.7 may be applied separately (or will be applied separately to the extent required by Regulations) to each

"plan" within the meaning of Regulation Section 1.401(m)-5. Furthermore, the provisions of Code Section 401(m)(5)© may be used

to exclude from consideration all Nonhighly Compensated Employees who have not satisfied the minimum age and service

requirements of Code Section 410(a)(1)(A). For purposes of applying this provision, the Administrator may use any effective date of

participation that is permitted under Code Section 410(a) provided such date is applied on a consistent and uniform basis to all

Participants.

[Kevin C]

That comment from an IRS official was during the 2006 ASPPA annual conference DC Q&A session. I don't think I will ever forget that exchange. I thought Craig Hoffman was going to have a stroke. He did make it very clear that if anyone at the IRS had ever told us that kind of document language was needed, our documents would have included it.

That was after the 1/31/2006 submission deadline for the EGTRRA DC pre-approved documents. Apparently, it was addressed in the review process with at least some of the document sponsors. Our EGTRRA VS document specifies that the maximum entry dates permitted under Code §410(a)(4) are used to determine otherwise excludables. The PPA LRMs might give you some guidance on whether the IRS considers that type of language required.

[MWeddell]

On the original post, I don't think you go back and rerun year 1's ADP test to generate prior year data for year 2. This was emphasized in notices or revenue procedures shortly after Pension Protection Act of 1996 was passed, introducing the prior year testing method for NHCEs, although none of the fact patterns matches yours exactly.