0 hours for eligibility, 1000 hours for benefit

[ajc0202]

Hello,

We've got a plan with 0 hours required for eligibility and 1,000 hour required for benefit.  1 owner that works 1,000 hours and 2 employees that don't work 1,000 hours.  Are we going to have testing issues?  Are one of these employees going to need to benefit?

Thanks!

[Lou S.]

Maybe.

Have any of the employees EVER worked 1000+ hours in any year? If not you can probably test them separately as otherwise excludeable employees.

But either way you are going to have give top heavy minimums.

[truphao]

I am assuming you are referring to a DB/CB plan.  Since you have 3 people in the Plan, at least 2 of them must receive a meaningful benefit to pass 401(a)(26).  This is for 2022.   For 2023 and onward you might want to evaluate the efficiency of the whole design with zero hours for eligibility.

[truphao]

self-correcting - the above is assuming they have worked over 1,000 hours in prior years.

[ajc0202]

Ok, thank you.  Never 1000 hours in any year.  I was thinking Top Heavy may be a problem..

[Bill Presson]

5 hours ago, ajc0202 said:

Ok, thank you.  Never 1000 hours in any year.  I was thinking Top Heavy may be a problem..

Top heavy is a problem. If they're participants on the last day, they get top heavy minimums and likely required gateway. Doesn't matter what the allocation requirements are.

[Bri]

Actually it's getting to 1000 hours, rather than the last day, to qualify for a DB plan's top heavy minimum.  

Even if they don't work enough to automatically qualify for a THM, they might end up needing something that large, anyway, to pass the 401a4, depending on what the owner is getting.

[Lou S.]

Sure DB TH minimum is 1000 hours, but DC TH minimum is employed on last day of the year. So at a minimum they are going to need to get a DC TH min. But the coordinated TH language between the plans should tell them how much and which plan or plans.

[ajc0202]

Ok, thanks.  Yeah, this is messy.  They do have a 401k plan, but they have not been tested together as the DB is a Safe Harbor fully insured plan (with life insurance - yay).  The DC didn't end up getting this same entry provision.  It was added to allow the owner's husband in the plan when there were no other employees.