How is ADP test w/ statutory exclusions administered?

[Guest PLHart]

When using new rules to excude <21<1yr service EE's from test, when is an employee who satisfies statutory requirement included in test. For example, EE#1 hired July 20, 1999. Plan has quarterly entry. Do we count his comp and deferrals from October 1 2000 forward only toward the 2000 test, or do we need to count entire years worth toward test since he became eligible in year, or is there a way we don't have to count him until next year, or is ot handled in another way altogether?

[Guest Hans Moleman]

It is debatable on how the otherwise excludable provision should be used. Should you use age 21/1 YOS and the plans entry dates or be allowed to use dual entry dates? I believe the latter is allowable, but some will argue this.

That being said, in your case I believe you could classify the individual as an otherwise excludable employee for 2000. If however, you felt compelled to not treat him as otherwise excludable, it's all or nothing with regard to compensation and deferrals. In what category he is considered is the factor.

[actuarysmith]

The plan document should explicitly state whether you use compensation from entry, or compensation from the first day of the plan year in which an employee becomes eligible.

Please refer to the plan doc for guidance on this question - it should not be a matter of opinion or interpertation, it should be a spelled out in black and white.

[Guest Powers]

I agree with Smith. Your Document/Adoption Agreement should indicate the compensation used.

[KJohnson]

I believe that at the 1999 ASPA conference, Q&A 76, the IRS took the position that you could use dual entry dates if you continued testing under the "old rule" (i.e. you would run separate testing on the statutorily excludable employees) but you could not use dual entry dates and must use the Plan's entry dates if you were testing under the "new rule" (i.e. simply disregarding the statutorily excludable employees). I think there are prior discussions on this. Here is one:

http://benefitslink.com/boards/index.php?showtopic=7297

[Guest]

kjohnson:

the 'new rule' is not simply disregarding statutory excludables.

the new rule is to disregard NHCEs who did not meet 1 year/ age 21.

The difference being, of course, you have no HCEs no matter what under the new rule. The HCEs with less than age 21/1 year are treated as if they had attained age 21/1 year.

Under the old rule, you might have an HCE, and then you would have to run separate tests.

[KJohnson]

Tom. Of course you are right. Thanks for the clarification. I was just trying to explain the IRS's comments regarding dual entry dates and did not explain the "new rule" as fully as I should have.