New plan, former HCE now under 500 hours, is he in?

[JWRB]

I ran into an interesting problem today and was hoping for some guidance, as my research has come up a bit gray.

New safe harbor plan for 2015 with a former HCE/owner who switched to part-time, working under 500 hours the past 5+ years. The goal is the not have the former HCE eligible to participate without a direct exclusion.

I understand that for 5 breaks in service, they (seemingly) have to be a participant at some point. Would the one year rule negate the prior eligibility, or does he have to be a "participant" at some point for that, as well?

Thanks. If more info is needed just let me know.

[Tom Poje]

According to the ERISA Outline Book, 2012 Chapter 2 Section V, C.2f rule of parity doesn't apply to such a person,

2.f.Rule applies only to participants. Since IRC §410(a)(5)(D) and ERISA §202(b)(4) refer to a "participant" having the requisite number of consecutive breaks in service, it is presumed that this rule cannot be applied to an employee who has not become a participant in the plan at the time the break in service period begins. Apparently then, the rule of parity does not apply to an employee whose break in service period began prior to the effective date of a plan, even if the employee would have otherwise been a participant in the plan if the plan had been in effect and even if the employee has incurred at least five consecutive breaks in service.

so I guess that means you use the 1 year break in service rule - see page 5 of the IRS publication - opening sentence of highlighted portion

min partic standards publication 6388.pdf