Excluding Employees - Safe Harbor

[CJS07]

Hoping someone can enlighten me

Plan is Safe Harbor Non-Elective 3%.(SHNE)

Age and service waived as of 1/1 for NON-seasonal employees.

Seasonal Employees are always excluded.

Eligibility is 21 and 1 year of service (1000 hours in 12 month period) with dual entry 1/1 and 7/1

I'm being told that as long as the Plan can pass coverage then the Seasonal employees will NOT receive a SHNE contribution even if they have met the 21/1 year and entry requirements. Something doesn't seem right - isn't this the very definition of discriminatory? The Seasonal people are not covered under a different Plan.

How does one go about defining Seasonal? Do you write a very specific definition into your Plan Documents? The client grows different crops and there are 3 seasons. Can you exclude one season (say Summer season) and not Fall and Spring?

[ETA Consulting LLC]

Your question goes to whether or not there is an impermissible "Service Class" exclusion in a plan that excludes Seasonal Employees. The IRS did issue Regulations stating that you may not exclude employees by classes that are based on customary work schedules (i.e. part-time, or temporary). The position, as I remember, was a blanket 'you cannot do it', but the reasoning was that it is possible for a part-time employee to work 1000 hours during a 12 month period; and you would have to exclude him on the basis of that time instead of a class that is defined by the customary schedule.

With that understanding, I have seen two sets of eligibility within the same plan. A plan may say full-time employees are eligibility immediately while part-time employees must satisfy a year of service (which effectively gets around this rule since the class is not be excluded (but merely held to a different standard).

As for 'seasonal', I would agree with you that there may be an issue.

Good Luck!

[Belgarath]

A lot of IRS pre-approved documents have an exclusion for part time, temporary, seasonal, etc., BUT, they also have "fail-safe" language that says if any such employee actually completes a year of service, they will no longer be part of this excluded class.

I would check the document language VERY carefully to see if you have some similar provision that will take them out of the excluded class.