BOY participant count with excluded employees

[Belgarath]

New plan to be effective 1/1/2018. Participant count will apparently be 101, so audit would be required.

What if the 2 owners are excluded? Are excluded employees who have otherwise satisfied eligibility considered "participants" for BOY count purposes? The 5500 instructions don't seem crystal clear on this.

If they don't have to be included, we could exclude the owners, then amend the plan, say, February 1 to bring them in.

Seems a little too cute, and the consequences of not filing with audit if required are, of course, draconian. The phrase "earning or retaining credited service" in the 5500 instructions makes me nervous...

P.S. - FWIW, it seems to me that under 2510.3-3(d)(1)(ii)(A)(2) you are still a participant, even if in an excluded class.

[Belgarath]

Maybe we'll just set up two identical plans and permissively aggregate them for coverage/nondiscrimination testing. I generally dislike such an approach, but it'll actually save them money...

[chc93]

53 minutes ago, Belgarath said:

Maybe we'll just set up two identical plans and permissively aggregate them for coverage/nondiscrimination testing. I generally dislike such an approach, but it'll actually save them money...

... and also provide a good cushion for the future.  With only 2 owners excluded, count is 99.  Maybe not inconceivable to hire 2 new employees in the near future... then over 100 again.

[CuseFan]

but then you get the 80-120 rule to file as you did the year before

[chc93]

52 minutes ago, CuseFan said:

but then you get the 80-120 rule to file as you did the year before

Yes... thanks.  I overlooked that.  But still, the cushion with 2 plans might be worth it.

[Tom Poje]

As far as I know the only place an excluded ee shows up is in the denominator of coverage (once he meets eligibility)

[Flyboyjohn]

Why not exclude 2 NHCEs and avoid the need for the "too cute" amendment to add back the owners?

[Belgarath]

Flyboyjohn - the employer will not exclude any NHC's, hence my original question. I'm still concerned that the DOL regs bring in excluded employees who have satisfied the eligibility requirements. Any opinions on whether I'm interpreting the regulation incorrectly? A common sense interpretation seems like if you can't participate because you are excluded, you shouldn't be counted as a "participant" - but a literal reading can lead to the opposite conclusion. I'd love to be able to take the more liberal interpretation, and I wondered if anyone had wrestled with this particular situation before. Thanks.

 

[Flyboyjohn]

I would defend to the death the position that excluded employees are NOT "participants" and we use that position very often to structure plans to avoid needing the annual audit.

[Tom Poje]

the form 5500 instructions have

1. Active participants (i.e., any individuals who are currently in employment covered by the plan and who are earning or retaining credited service under the plan).

2. is retired or separated currently receiving a benefit

3. is retired or terminated entitled to a future benefit

4. is deceased or beneficiary entitled to benefit

 

since an excluded person is active but NOT covered I don't see how you count them under the instructions.

 

edited to add NOT. my typo

 

 

[Mike Preston]

NOT covered?

[Belgarath]

Here's the excerpt from the regulation - emphasis is mine. This is why I'm concerned.

(ii) An individual becomes a participant covered under an employee pension plan—

(A) In the case of a plan which provides for employee contributions or defines participation to include employees who have not yet retired, on the earlier of—

(1) The date on which the individual makes a contribution, whether voluntary or mandatory, or

(2) The date designated by the plan as the date on which the individual has satisfied the plan's age and service requirements for participation, and

(B) In the case of a plan which does not provide for employee contributions and does not define participation to include employees who have not yet retired, the date on which the individual completes the first year of employment which may be taken into account in determining—

(1) Whether the individual is entitled to benefits under the plan, or

(2) The amount of benefits to which the individual is entitled,

whichever results in earlier participation.

It seems to me that even if in an excluded class, you have satisfied the AGE AND SERVICE requirements for participation.

Anyway, I thank you all for your opinions.

[Flyboyjohn]

An excluded employee can never "satisfy...the service requirements for participation" since their service is in an excluded class.

[bcmom]

I had a plan with more than 100 lives that would soon require an audit. The plan was then amended to exclude union employees. This exclusion kept the plan under 100 lives and thus avoided the audit requirement. It seemed like a "clever" method of avoiding an audit, so I verified it with the DOL. It took several calls up the DOL chain, but they confirmed that the excluded employees were not in the count. The only employees who remained in the participant count were those who had an account balance.