Question on who to include in the 410(b) and 401(a)(4) tests.

[AndyT]

This isn't really a cross-tested question, but it affects a new comp. plan that I am working on.

1999 calendar year plan. A person was rehired 11/1/99. According to the document, this person will participate "retroactively" to his rehire date once he completes a year of service. Regardless of what happens, he will not get a contribution for 1999, because the plan requires 1000 hours to get a contribution. But is he included in the 410(B) and 401(a)(4) tests as not-benefiting?

Do I have to wait until 11/1/2000 to see if he completes his year of service? I hope I do not have to include him for 1999, because it will hurt my (a)(4) testing.

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Andy Treece

[Guest]

someone should say 'welcome aboard, and thanks for sharing!'

you are stuck between a rock and a hard place. you can't assume the ee will continue to work, but you are correct, if he does, you have to include him, which means going back and rerunning the test.

no DC plan should have retroactive language for rehires. the regs just weren't written for this.

if plan passes including him, then it is a moot point, but it sounds like you are trying to determine the minimum to allocate to others at this point in time.

ugh. good luck on your assumptions - I guess be conservative and include him. if he quits, plan passes anyway.

[AndyT]

What about this? -

Could I test this guy separately as permitted in the 410(B) Regs? And if I do this, he would be tested separately for (a)(4), right?

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Andy Treece

[Guest]

I am not sure you could test him separately. by the time he completes his year of service and retroactively enters, he is no longer statutory excludable.

according to Sal Tripodi, some (including some IRS personal) have expressed an opinion that break in svc rules can not apply to 401(k) because it requires retroactive entry. of course, there is nothing in writing, only an opinion. One train of thought is to allow for deferrals upon reemployment immediate, and have reentry apply only to the non-401(k) portion.

I personally see little point in that. you might as well have the individual enter immediately at that point and be done with it.

since you are talking about a cross tested plan, just what the heck are you going to do - the plan is probably top-heavy. that means the participant may be due a top-heavy minimum once he completes his year of svc. but you just won't know.

I suppose you could make a contribution for him for the year 1999. since contribution is made in 2000, it can be deducted in 2000.

As with a match made during the current year but subject to last day provision, you carry a warning message on the participants certificate 'current contribution subject to eligibility provision'. If he quits, he gives up the contribution, you can now apply the contribution to the year 2000 or realloacte to the other people for 1999.

In other words, you have '2 tests' in 1999 - one giving him the contribution and a second, just in case, take that amount and allocating it to the other participants (as long as it follows document provisions). hopefully plan will pass.

just an idea - and that is going to an extreme, isn't it.