Mom Answers Phones for 10 hours

[austin3515]

Buisness owner has Mom come in for 10 hours a year.  Comp is $450.  Now she was eligible once upon a time, she worked in the office for about a year and hit her 1,000 hour requirement.

Needless to say as a zero in the test, she has a nice favorable impact on testing.  Now I read through the Carol Gold Memo and Relius's response, and the memo certainly could have made accusations about this type of arrangement, but does not in any way (focsing instead on young NHCE's and frankly only the most obnoxious of scenarios).

So would you exclude her from the testing based on the Carol Gold thought process or include her without worry because Carol Gold never even mentioned this.  I'm feeling pretty good about including her but was curious what others thought. 

http://www.relius.net/News/TechnicalUpdateDetails.aspx?T=P&1=1&ID=628

[Belgarath]

I would include her.

[duckthing]

Assuming I have no specific knowledge that she did not actually perform any services for the sponsor, I don't see any reason to lose sleep over including her in testing.

[Kevin C]

Well, the regs say that all eligible employees are in the test.  If Mom deferred $400, you can't exclude her. I don't think it's different just because she elected to defer $0. 

The Gold memo deals with "creative" plan design and employment practices.  The thing helping the testing in your situation is Mom's deferral election, not the plan design or that she was rehired. I think it would be huge reach to apply the memo to a situation like what you describe.  Besides, if the IRS wanted to do that, we would have heard about it by now.  It's fairly common for small businesses to have the owner's kids, parents and/or spouse work part-time. 

[Tom Poje]

The IRS issue is putting people into the plan to help testing, all the examples are NHCEs who basically never vest or receive a small contribution to sway the test.

In this case it is an HCE, but the same effect because as noted, it helps testing to have an HCE at 0.

If she never ever worked 1000 hours I would have a problem. The IRS comments from a few years ago were

Although these designs may allow the plan to satisfy the vesting or numeric general tests for nondiscrimination and the associated regulations, they don’t satisfy Treas. Reg. Section 1.401(a)(4)-1(c)(2), which requires that the provisions of Sections 1.401(a)(4)-1 through 1.401(a)(4)-13 be reasonably interpreted to prevent discrimination in favor of HCEs.

but you indicated she did actually work 1000 hours at one time.  that seems to be in your favor. (because I hate running ADP tests with NHCEs who got into the plan at one time and don't work 1000 hours now but they still show as 0 on the ADP test - the IRS can't have it both ways forcing you to include such people but ignoring HCEs who fall into the same category. On the other hand, if the 10 hours on the phone is 'discussing the weather', 'the latest Oscar winners' or something similar I would question the practice - how you 'prove' that, well...

[Peter Gulia]

And to further support the reasoning about why the employer's hiring practice does not abuse the nondiscrimination provision, one might record the employer's independent business reason for selecting the particular worker.  For example, someone who previously served as a regular worker in the business and, even when not working, has informal communications with its chief executive might have business knowledge or skills superior to those of others who are available to work on a temporary basis.

 

[shERPA]

Based on the facts, she's in.  No basis at all to exclude her. 

If the company gave Mom a 100% of pay contribution allocation, then her presence will adversely affect the test.  But she's still in.  

[AndyH]

I would give her a raise.  She doesn't even make minimum wage.  (I'm only half joking).

[digger]

Assuming the employee never had a vested benefit, how many Break-in-Service years do you need to disregard prior service? Is there anything that says there also needs to be a separation from service?

[BG5150]

22 hours ago, AndyH said:

I would give her a raise.  She doesn't even make minimum wage.  (I'm only half joking).

 

On 3/7/2019 at 6:09 AM, austin3515 said:

Buisness owner has Mom come in for 10 hours a year.  Comp is $450. 

It's $45/hr...