Dual Eligibility - New Plan waiver of eligibility requirements

[JustMe]

Am I thinking this clearly - Client waived eligibility requirements as of the effective date of a new plan and this brings in an HCE hired on the effective date.  There are 5 other employees hired after the effective date (all NHCEs) who are subject to the plan's eligibility conditions of 1 YOS and semi-annual entry dates.

For coverage purposes we do have 100% of HCEs benefiting and no HNCEs benefiting - coverage failure?  

Or do we consider the total population and consider 100% of HCEs (HCEs hired on or before effective date + HCEs hired after effective date (here no HCEs hired after effective date)) benefiting v. NHCEs benefiting which is calculated as follows:

NHCEs hired on or before effective date / NHCEs hired on or before effective date + NHCEs hired after effective date = NHCE benefiting population 

...and that % must be greater than 70% for this waived service condition to pass coverage?  

 

I am getting push back that you can have such dual eligibility conditions and there is no need to test for coverage.

[BG5150]

You can separately test those employees with less than 1 YOS (and under 21).

So one group will be the HCE and no one else.  It's not that no NHCE benefit, it's that there are no NCHEs required to be in that group.  So it automatically passes.

The other group is all the NHCE, but no HCEs (similar to the group above, but opposite).  So automatic pass.

[JustMe]

Testing separately with those less than 1 YOS will result in 1 HCE and 5 NHCEs. Only the 1 HCE entered the plan since she was hired on the effective date of the plan and the NHCEs were hired after this date. The NHCEs are subject to the 1 YOS.

[C. B. Zeller]

If we're only looking at the deferral and match portions of the plan for purposes of coverage, you can use the early participation rule to disaggregate only the otherwise excludable NHCEs.

[JustMe]

You can only use the early participation rule to disaggregate only the otherwise excludable NHCEs for ADP/ACP purposes, not for coverage purposes. So I still have an issue.

[JustMe]

My main question is what is the group for testing purposes when you have an early participation rule in the plan?

Will the test result for the current plan year (2019), based on the early participation date as of the first day of the plan year (1/1/2019), be based on employees with a hire date on or after 1/1/2019:

• 1 of 1 or 100% HCEs benefiting
• 0 of 5 or 0% HNCEs benefiting = FAILS COVERAGE

OR does the coverage group include those eligible for the plan due to being employed before 1/1/2019:

• 4 of 4 HCE benefiting
• 20 of 25 NHCEs or 80% benefiting = PASSES COVERAGE 

[Mr Bagwell]

20 hours ago, JustMe said:

There are 5 other employees hired after the effective date (all NHCEs) who are subject to the plan's eligibility conditions of 1 YOS and semi-annual entry dates.

I'm still trying to piece this thread together.... but, the 5 employees hired after the switch don't count yet in the coverage calculation.  they haven't met eligibility conditions.

[Bri]

Yeah, this got confusing when you mentioned there were 25 other people.

And to be clear, you're worried about passing 410b specifically, rather than your ADP/ACP tests.  So you're not carving anyone out like you can for ADP. 

So basically, who do you have in your non-excludable group, and who's in your group of "statutory exclusions"?  The statutory exclusion group sounds like 1 HCE out of 4 or 5 total HCEs now? 

In other words, who's in the plan?  And who's in the plan ONLY because of the liberal eligibility?  I think those give you the answers.

Also, late-2018 hires should also be excludable, since 410(a) lets them stay ineligible until 1/1/2020.

[JustMe]

Bri, thank you very much! Yes, looking to pass 410(b).  So disaggregating them looks as follows:

EEs who met 1 YOS requirement as of 1/1/2019:

• HCEs – 4 (all 4 benefitting)
• NHCEs – 18 (all 18 benefitting) (add 1 more here if considering who met 1 YOS as of 12/31/2019 - also benefitting) 

EEs who did not met the 1 YOS requirement as of 1/1/2019:

• HCEs – 1 (benefitting)
• NHCEs – 6 (1 benefitting – who was hired 3/12/18 so actually did complete 1 YOS by 12/31/2019) (the remainder were hired after 1/1/2019 and so not benefitting)

Based on this information, is our coverage rate for the otherwise excludable group 1 of 6 or 17%? Or is it 0 of 5 or 0% since the 1 NHCE actually worked 1 YOS – negating the impact of the early participation requirement for him (not sure that is what I’m trying to say but just determining whether he should be differentiated since he HADN’T worked 1 YOS before he entered the plan)?

Could we aggregate and have:

• 5 of 5 HCEs benefitting = 100%
• 19 of 24 NHCEs benefitting = 79% !?!?!?

 

[Bri]

So if you stay disaggregated, then you have:

Nonexcludable "plan":  (18/24) divided by (4/5) for a coverage ratio of 94%

Excludable "plan":  (1/24) divided by (1/5) for a coverage ratio of like 21% that fails all the harbors and midpoints.  Since the new HCE had zero-wait eligibility, then that's the lowest you can use and nobody can be ignored from the coverage tests for being recently hired.

So I think you actually have to aggregate, unless you want to make QNECs to ineligible 2019 hires.

With the usual caveat, if you aggregate for coverage you have to do so for nondiscrimination.

[JustMe]

Great, thank you!!!