Owner not working but not terminated

[Cynchbeast]

We have a 401(k) plan with ER match, and the owner of the corporation, is already a participant. He has stopped working (no hours and no compensation reported) but is not officially terminated. How is he treated in the 410(b) test?

• Benefitting in 401(k) with 0% deferrals and non-benefitting in match (since he hasn't satisfied requirements, and there is nothing to match anyway); or
• Excludable - since he didn't work there during the year

I could also ask this as it applies to an employee who is on leave the entire year but has not officially terminated.

[BG5150]

I think the EOB recommends keeping him out, but don't quote me on that.

[StormShadow]

I agree... no compensation, no opportunity to defer = not benefitting and exclude from test.

This would apply to either the owner or employee.

[BG5150]

I would say not in 410 at all either. Not just not benefiting, but excluded altogether.

[Cynchbeast]

That is the way we have always treated it. We did have this issue come up with our software vendor (Datair), who disagrees. I generally have to override that in the testing.

[StormShadow]

Out of curiosity, how does Datair treat 0 compensation employees and what is their line of reasoning?

[Peter Gulia]

Even apart from shareholder circumstances, it's possible for an employee to have zero wages for a period if she performed no work during the period. This sometimes happens when an employee is available to work, but the employer had no work it wanted the employee to do.