Eligibility Question

[Below Ground]

Setting up a new 401(k) Plan effective 1/1/2023.  The Plan covers a workforce that is entirely HCE, with one exception.  There is an employee who had 10 years of service but was terminated in April 2022.  She was then rehired in mid-January of 2023.  It also appears that she did not have a Break in Service in 2022 as she did have over 500 Hours.

This person would NOT be HCE for 2023 since her pay doesn't reach the pay threshold given her termination.  (She will be HCE in later years by pay level.) It is hoped that she can be excluded from the Plan in 2023 for testing purposes.  Since we have to include past service for eligibility, the only way we see where exclusion might be possible is using the fact that she was not in the employ of the firm on an Entry Date.  This could be achieved if we use a single Entry Date of January 1 following 6 months of service.

I don't believe this will work since she did not have a Break in Service as she had over 500 Hours in 2022, so she must be allowed entry on her date or reemployment.  Is this wrong, or does anyone see a method where she could be excluded?  Would using a 2 year wait for profit sharing entry limit her to only the Gateway, for example?

[CuseFan]

Check the document, but that prior service is going to count and I don't think you can delay a re-hire's participation on entry dates, usually it's immediate. Even if you are able to exclude until after a YOS using rule of parity, participation (other than deferrals) is retroactive so you're in the same boat. Two years eligibility doesn't help either. If they never had a plan until now, maybe it's different, but I don't think so. 

[Lou S.]

Maybe I'm being dense but I don't see how you can exclude her. She has 10 years of service and will be eligible. Even if you could keep her out under some reason like the the 1 year hold out (which I don't think you can because you said she doesn't even have a BIS) you'd have problems in 401(k) since the entry would be retro active and how do you go back and retro actively let her do 401(k)?

[Below Ground]

Thank you CuseFan and Lou S.  As you can tell from my original post, I really don't think there is any way to exclude her.  Your input validates to me that we are stuck with including her.  It's not that the client is just trying to exclude her.  It is more an issue of looking at her pay for 2023, and how they should factor in her coverage under this Plan.  I honestly don't see it as that big a deal, but they do and they are the client.  Again, thanks for your input.  Very much appreciated!