Excludible NHCE becomes HCE, quits, minimum coverage issue

[JWRB]

I have a bit of a quirky one that should be a lot simpler.

I have a controlled group with two entities, both with eligibility less than a year. NHCE "A" hired and gets in around November of 2015, gets a huge bonus 12/31/15, quits in March of 2016. A is an NHCE for 2015, but bonus comp pushes him to be an HCE for 2016 due to 2015 comp being around $150K.

The whole period, A is excludible. Obviously for 2015, A would be an NHCE in the otherwise excludible group for testing. For 2016, is there anything that would allow A to still be an NHCE for testing?

I can't fathom there is, but there's some internal debate. I've combed through the 410(b) regs, as well as 414, but can't find anything supporting that he'd be an excludible NHCE for 2016.

Thanks!

[ETA Consulting LLC]

He's HCE for 2016. The only place you'd need to look for that is the definition of HCE in your plan document. Obviously, 414(q) is the statutory definition, but the plan's language will align with that (plus will specify whether or not the sponsor is actually using the top paid group election).

For 2016, he can be an otherwise excludable HCE for testing purposes. He's going to be an HCE either way. I'm not sure about what road block you are running into because of his HCE status. Usually, and HCE who gets zero helps the test.

Good Luck!

[JWRB]

As a follow up, if we could get A into the main testing group, even as an HCE, coverage would be passed. So that's an acceptable solution, as well. But aggregating the entire population of non-excludibles with the main group would fail coverage.

[ETA Consulting LLC]

Well, there is a testing option to include the otherwise excludable HCEs in the main group while excluding all otherwise excludable NHCEs. You have to read your plan (even if you refer to the Basic Plan Document). Back in my first two years in the industry, I used to hate when a director would ask me 'what does the plan say'. 99% of the time, this is the answer.

Good Luck!

[Tom Poje]

the only exception is ADP testing (not coverage) in which he can be included with all other ees > 1 year of service

for coverage profit sharing it is optional to include or exclude terminees < 500 hours (assuming they did not benefit), but you have to treat all terminees that way if you use that option.

[JWRB]

Thanks for your help everyone. Yea, he's an excludible HCE. I think the issue is that the employer wants to benefit him still, even though he quit. We're trying to convince them to do that externally.

Thanks!

[MWeddell]

You might also consider whether he would still be an HCE if all of the employer's plans were amended by the end of the 2016 plan year to use the top-paid 20% group election. Sounds unlikely that it'll wortk, but I'll throw it out there.