Otherwise excluable employees

[jpod]

Single plan with dual eligibility requirements. Full time employees eligible first day on the job. Part time employees must complete one year of service (as per the 2006 Quality Assurance Bulletin). Therefore, 410(a) is satisfied. However, in testing the full time employee group for 410(b) coverage, are the part time employees who have not completed one year of service excludable, or are no employees excludable?

[MWeddell]

You may run one coverage test for all employees because some of them are eligible on their hire dates. Alternatively, you may disaggregate the plan into those with < age 21 and < 1 YOS (optionally including an entry date assumption) and those above that threshold.

[jpod]

MWedell, here are my facts.

1. Plan is a new plan.

2. Three full time employees. One HCE (a 5%+ owner), two NHCEs. They will be immediately eligible.

3. Three part time employees, all NHCEs. They must complete 1,000+ of service in a 12-month period and then they are eligible immediately after the end of that 12-month period. They haven't yet, and probably never will.

4. If I disaggretate, is the ratio percentage of the portion of the plan covering the full time employees 100% or 40% (i.e., 2 out of 5 NHCEs benefitting)?

[Tom Poje]

more info needed

if it is a new company (as opposed to a new plan for an existing company), then no one has a year of service, so all would be treated as otherwise excludable

[jpod]

It's a mature company with a new plan.

[MWeddell]

For eligibility purposes, one can't exclude the prior service just because a qualified plan wasn't in place.

Let us know whether the full-time HCE and two full-time NHCEs have a year of service and age 21. Sounds like the three part-time NHCEs have never earned a year of service.

[jpod]

the full time employees, the hce and the nhces, all have tons of service (and are over age 21)

[MWeddell]

What you'll need to do is to disaggregate those employees with < 1 year of service or < age 21 from the others. The otherwise excludable employees are the three part-timers, which is deemed to pass coverage because there are no HCEs in the group. For those with 1 year of service + age 21 at least, (2 NHCEs benefitting / 2 NHCEs total) / (1 HCE benefitting / 1 HCE total) = 100%, which is greater than or equal to 70%, so it satisfies coverage.

If you didn't disaggregate, you'd have a ratio percentage of only 40%, forcing you to run the average benefit test.