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Posted

A plan is on a calendar year. 

EE is eligible to participate on their date of hire, and the entry date is the first day of the month coinciding with or next following the date they satisfy the eligibility requirements. 

EE was hired on 11/25/2015 and is >21 years old. There is no termination date.

Until what date are they still considered otherwise excludable based on:

Option 1: The group includes participating employees who have not satisfied the IRC Section 410(a)(4) entry date period applicable to them – in other words, they are treated as otherwise excludable employees until the earlier of the first day of the next plan year after attaining age 21 and completing one year of service or 6 months after satisfying such requirements. This is the maximum waiting period under the Code.

Any comments or thoughts would be much appreciated! Thanks! 

Posted
52 minutes ago, NW529 said:

A plan is on a calendar year. 

EE is eligible to participate on their date of hire, and the entry date is the first day of the month coinciding with or next following the date they satisfy the eligibility requirements. 

EE was hired on 11/25/2015 and is >21 years old. There is no termination date.

Until what date are they still considered otherwise excludable based on:

Option 1: The group includes participating employees who have not satisfied the IRC Section 410(a)(4) entry date period applicable to them – in other words, they are treated as otherwise excludable employees until the earlier of the first day of the next plan year after attaining age 21 and completing one year of service or 6 months after satisfying such requirements. This is the maximum waiting period under the Code.

Any comments or thoughts would be much appreciated! Thanks! 

Where is option 2?

Posted

Hi Mike, 

These are the other 2 options for classifying otherwise excludable EEs: 

  • Option 2: The group includes participating employees only until the plan’s entry date after they attain age 21 and complete one year of service – in other words, they are treated as otherwise excludable until the date they would have entered the plan, using the plan’s entry dates, if the plan required age 21 and one year of service to participate. 
  • Option 3: The group includes participating employees until the actual date on which they attain age 21 and complete one year of service – in other words, no waiting period is tacked onto the maximum age and service conditions.  

EDIT - The EE is a HCE. 

Posted

the attached IRS memorandum has the following

It is an acceptable application of the statutory and regulatory provisions to treat the population of otherwise excludable employees for purposes of coverage testing under § 410(b)(4)(B) and performing the ADP test under § 401(k)(3) as including employees participating in the plan who have not satisfied the § 410(a)(4) period applicable to them (meaning through the earlier of the date 6 months after the participant attains age 21 and completes 1 year of service or the first day of the first plan year after the participant attains age 21 and completes 1 year of service).

..................................

If you are talking for purposes of ADP testing there is a special provision that all HCEs could be treated as includable even if they only worked a short time.

otherwise excludables.pdf

Posted

if calendar year plan an ee hired 11/25/15 who worked 1000 hours from 11/25/15 - 11/24/16 or 1000 hours from 1/1/2016 - 12/31/2016 would no longer be otherwise excludable on 1/1/2017.

It is not 6 months after meeting the one year wait because the first day of the plan year kicks in.

Posted

Hi Tom, 

Thank you for your response.

I understand your logic, but I was reviewing the following from ASPPA regarding this topic. 

The example on the bottom seems to suggests that an EE with a DOH 9/1/2014 can be considered otherwise excludable until 1/1/2017. 

Is that the correct interpretation of the example? It seems to contradict the IRS memorandum you quoted above.  

Thanks in advance! 

Otherwise Excludable Employees and Entry Dates

BY   
MAY 17, 2016
 
 
 
In a recent Chief Counsel Advice Memorandum, the IRS responded to a request regarding the application of the “otherwise excludable employees” for purposes of coverage testing. Specifically the request was whether it was permissible to apply the maximum statutory requirements to determine the population of excludable employees if a plan had an earlier entry date. The example was for a calendar year plan that allowed for immediately eligibility for employee deferrals. If an employee, age 24, was hired in August 2015, they would be in the otherwise excludable group for 2015, but could they also be in the otherwise excludable group for 2016 since the earliest they would have to enter the plan is Jan. 1, 2017?
 
In their analysis, the IRS cited Section 1.410(b)-7(C)(3) which describes otherwise excludable employees as “employees who satisfy age and service conditions under the plan that are lower than the greatest minimum age and service conditions permissible under section 410(a).” The use of the word “greatest” can be read to include the maximum waiting period of entry to the plan of the earlier of the first day of the plan year or 6 months after the date the employee has attained age 21 and completed 1 year of service in the determination of the otherwise excludable employee group.
 
They also looked at the legislative history accompanying Section 410(b)(4)(C), which included the statement: “For purposes of the separate testing of excludable employees, employees who have not attained the statutorily permitted entry dates may be considered excludable employees.” This further supports the application of the maximum waiting period in the determination.
 
However, when you review how separate testing under 410(b)(4)(B) works, Example 4 in 1.410(b)-6(b)(4) does not explicitly provide the waiting period be tacked on to the age 21 and 1 year of service requirement to determine the otherwise excludable group, and therefore does not support the application of the waiting period on top of the age 21 and 1 year of service requirement.
 
While the IRS agreed it was acceptable to apply the maximum age and service requirements, including the maximum waiting period, it was not the only acceptable application. The IRS cited two other acceptable positions: (1) an employee is an otherwise excludable employee only until the date they meet the age 21 and 1 year of service requirement (there is no waiting period tacked onto that); and (2) an employee is an otherwise excludable employee only until the plan’s entry date after they meet the age 21 and 1 year of service requirement. 
 
For example, assume we have a calendar year plan with eligibility requirements of 3 months with an entry date of the first of the month following completion of the requirements. If an employee, age 24, is hired on Sept. 1, 2014, they would enter the plan on Dec. 12, 2014 and would be an otherwise excludable employee for 2014. However, for 2015 it would depend on our application of the entry dates as to whether they would be considered an otherwise excludable employee for 2016. If we use the statutory requirements of age 21 and 1 year of service, with the maximum waiting period they would be excludable until Jan. 1, 2017. If we use either of the alternative options of not imposing a waiting period, or use the plan’s monthly entry dates, they would not be excludable for 2016. Depending on the demographics of our group, a different application of the determination of the otherwise excludable employees could impact our nondiscrimination testing.
Posted

I'd say there is something wrong with the ASPPA write up.

if you were hired 12/12/2014 assume you work 1000 hours in 12 months then you hit 12/11/2015

you enter 1/1/2016. they must have started to changed the dates and missed something.

they even say "However for 2015 it would depend....whether they would be considered  an otherwise excludable employee for 2016"   that makes no sense

 

should be However for 2015 depending on which method you use...whether they are otherwise excludable for 2015.

 

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