Terminated participant in Prior year & gateway

[Chippy]

 A participant terminates on 12/31/2015.  His receives pay in 2016, and also match and a profit sharing contribution on that pay.     He is failing gateway as he only received a 1.07% employer profit sharing contribution.  and 1/3 of the HCE is 1.93%.   Is there anyway to exclude that participant from the gateway test?    I don't think there is, but thought I'd check.    The client allocates the profit sharing contribution based on years of service.   

 

thank you

[BG5150]

He is excludable from the testing because he is terminated with less than 500 hours.

Nevermind.

[Chippy]

Thank you.    That's the answer I wanted, but I thought that if the participant met eligibility to receive a contribution, they were included in testing......  coverage and cross testing. 

[Mike Preston]

It might be the answer you wanted, but it isn't correct.  In order to be an excludable employee one must not otherwise receive an allocation.  Sorry.  I know BG knows this, but it *IS* tax season!

[John Feldt ERPA CPC QPA]

Mike is right, the terminated with 500 hours rule cannot be applied to someone who is benefiting, it also can't be applied to someone if the plan has no allocation conditions. The one and only way to leave out someone who terminates with under 500 hours is if they received no benefit for the plan year and it was solely because they failed to meet the plan's allocation conditions.

Treasury Regulation 1.410(b)-6(f):

(f)Certain terminating employees -

 

(1)In general. An employee may be treated as an excludable employee for a plan year with respect to a particular plan if -

 

(i) The employee does not benefit under the plan for the plan year,

 

(ii) The employee is eligible to participate in the plan,

 

(iii) The plan has a minimum period of service requirement or a requirement that an employee be employed on the last day of the plan year (last-day requirement) in order for an employee to accrue a benefit or receive an allocation for the plan year,

 

(iv) The employee fails to accrue a benefit or receive an allocation under the plan solely because of the failure to satisfy the minimum period of service or last-day requirement,

 

(v) The employee terminates employment during the plan year with no more than 500 hours of service, and the employee is not an employee as of the last day of the plan year (for purposes of this paragraph (f)(1)(v), a plan that uses the elapsed time method of determining years of service may use either 91 consecutive calendar days or 3 consecutive calendar months instead of 500 hours of service, provided it uses the same convention for all employees during a plan year), and

 

(vi) If this paragraph (f) is applied with respect to any employee with respect to a plan for a plan year, it is applied with respect to all employees with respect to the plan for the plan year.

[Tom Poje]

it doesn't sound like it in your case.

There is, the option to include comp in the prior year (assuming the document checked that option) - in which case you would have included that comp and contribution in the prior year - you can't get out of not including it in some year. but obtaining that info timely might be 'heck' unless you are in the habit of requesting it (e.g. give us W-2 comp, oh and for folks who quit in late Dec and have a final paycheck the next year, give us that as well), as the 415 snap on below indicates you would treat everyone the same etc. so for example, the ADP test, you include everyone who quit late Dec, those who deferred and those who didn't, etc. but this would require you to ask for that 'first few weeks comp'

this is from FT William document:

15.  Post Year End Compensation

[  ]   Determine Compensation using Post Year End Compensation

NOTE: If selected, amounts earned during the current year and paid during the first few weeks of the next year will be included in current year Compensation.

 

old language (not sure which document provider) from original 415 amendment going back a number of years.

[BG5150]

17 hours ago, BG5150 said:

He is excludable from the testing because he is terminated with less than 500 hours.

Ooops.

[Chippy]

17 hours ago, BG5150 said:

He is excludable from the testing because he is terminated with less than 500 hours.

Thanks Guys.    I didn't know a way to exclude this participant, was hoping upon hope that there was some way to exclude him.    Document isn't checked to include post year compensation.    So, guess this terminated participant will have to receive an additional contribution to pass gateway.   

[BG5150]

Does he HAVE to get a PS contribution to begin with?

[Chippy]

Everyone gets the contribution and they fund it each payroll.   So, yes, it would be too difficult to take it back out at this point.  It's not a lot of money, just a pain, especially if the participant already took his money out of Plan.