Is this person excludable from the participation test?

[Bri]

This cash balance plan (half of a combo) had 6 eligible employees during the year.

One of them terminated with fewer than 500 hours.  And the plan requires 1000 hours for an accrual.

Seems easy....but, the plan has separate classes for the contribution credits, and her class always gets zero.

Did she fail to accrue solely based on the lack of hours?  She does get 415 participation credit for prior years even without an actual benefit, since she had the hours before 2021.

So I'm back to at least thinking "maybe".

(The two principal employees benefiting, out of either 5 or 6 employees, obviously are different outcomes for the test.)

Does the answer change if the plan is amended to provide any nonzero amount for a new class just for her, even though she won't accrue it?

Thanks!

--bri

[Bri]

Dang, I thought I had this figured out by disaggregating out the two statutory exclusions, but I can't tell what the 401(a)(26) regulations mean by the plan the otherwise excludable employees benefit under.  

There is no plan (those meeting 410a, or those in early) under which they benefit, but the disaggregated "plan" WOULD be the one they'd benefit from, ya know, if the formula weren't currently zero.

 

[Nate S]

The employee is not otherwise excludable due to the zero credit class she is in; 401(a)(26)-6(b)(7)(D) requires that the reason for failing to accrue a benefit be "solely" due to the failure to meet minimum service or last-day requirement.

If her exclusion is the sole linchpin to pass (2 benefitting HCE's out of 5 remaining employees = 40%); how did the plan previously pass when there were 6 total eligible?  Regardless, you'll need to 11g an accrual to another of the still employed of at least 1/2% NAR.  Best to write it so they get that benefit in future years too.

[Bri]

In past years there were only 4 employees to worry about.  The terminee in question is one of those four.

If I disaggregate, I've got 2 NHCEs by themselves, neither benefiting, though.  Then the statutory group is still the 2 out of 4. 

But the language of the regulation doesn't seem like I get a pass on the otherwise-excludable group, because nobody benefits at all in that "plan".