Providing benefit for HCE worked under 1000 requirement

Hi

First time for everything.

CB/DC (401k+SH+PS) combo. Both plans require 1000 hours for accruals/allocations. PS requires last day rule as well.

One owner/HCE got very sick and only worked 100 hours however employed on last day.

The other partners want him to get CB accrual as well as PS allocation.

All non-HCEs are covered under both plans and get the minimum required gateway - no exclusions.

Some non-owner HCE's are excluded from CB plan but participate in DC plan - just getting 3% non-elective SH.

Can an 11-g amendment be made just for this HCE and have him accrue benefits for 2021? If yes and gets benefits, should these benefits be included in the 2021 410b and 401a4testing? No issue with 401a26 as comfortable passing.

With him benefitting for 2021, all my testing will still pass so issues there (checked it already)

Any other suggestions I cannot think of?

Thank you

Does the plan include any reference to disability?  For example, might it impute hours while disabled?

11-g is out.  One of the requirements is non-discrimination.

Agree with BG - you can't do an -11(g) amendment that only increases an HCE.

David's suggestion may be helpful, but I usually see disability defined with respect to the Social Security Act. If the participant is not disabled within the meaning of Social Security then that may not matter.

For the PS, there is the overkill option of adopting a new plan retroactive to 1/1/2021 under the SECURE rules, put benefits in it only for this one person, and aggregating it with the existing plans for testing.

For the CB plan there is generally no reason why you can't adopt an amendment to increase past benefits, as long as the plan is not restricted by its AFTAP. The increase would have to be tested in the current year, i.e. 2022, since it wouldn't qualify for -11(g) treatment. Assuming the individual returns to work in 2022, they may have a double accrual for 2022 testing.

When you say the DC plan is 401(k) + SH, is that a safe harbor non-elective? If so then I would suggest removing the 1000 hours and last day requirements. There is no benefit to having them in this type of plan design. All it does is limit your flexibility.

6 minutes ago, C. B. Zeller said:

If so then I would suggest removing the 1000 hours and last day requirements. There is no benefit to having them in this type of plan design. All it does is limit your flexibility.

Only if you are using a new comparability (with everyone in their own group) style of PS allocation.  If they are using a design based safe harbor PS, then you lose that flexibility as you cannot pick and choose who you are going include or not include.

Just now, BG5150 said:

Only if you are using a new comparability (with everyone in their own group) style of PS allocation.  If they are using a design based safe harbor PS, then you lose that flexibility as you cannot pick and choose who you are going include or not include.

Agreed. This was assumed, I should have been explicit. However in that case, having that last day requirement saves you because you can now change the allocation formula mid-year.

1 minute ago, C. B. Zeller said:

Agreed. This was assumed, I should have been explicit. However in that case, having that last day requirement saves you because you can now change the allocation formula mid-year.

I design all my 3% Sh plans as new comp, no requirements for allocation and exclude HCE from the SH.  Offers lowest cost and greatest flexibility.  And vesting on all the the HCE contributions.

Lastly - are the hours recorded for payroll purposes, such as with a corporation?

You mention partners - if this is a partnership then hours may not be so readily accounted for?  A partner might not be onsite but might be still leading/pondering the future of his company from his hospital bed.

Jakyasar, it seems BenefitsLink neighbors have given you a range of potential solutions to consider.

But to consider how the plan, before a change, applies, test the employer/administrator’s assumption about whether the individual lacks 1,000 hours of service.

If that owner is a partner of a partnership or a member of a limited-liability company (and not an employee), does the “employer” service recipient count the self-employed individual’s time worked?

Labor department rules interpret how to count and credit hours of service for some purposes under ERISA §§ 202-204 and Internal Revenue Code §§ 410-411. See, in part:

29 C.F.R. § 2530.200b-3 https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-D/part-2530/subpart-A/section-2530.200b-2

29 C.F.R. § 2530.200b-3 https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-D/part-2530/subpart-A/section-2530.200b-3#p-2530.200b-3(a)

These rules recognize that not all workers punch a time clock, and provide ways to approximate a measure of service.

These rules even recognize situations in which a service recipient does not count a worker’s hours, days, weeks, or even months. Rather, a worker might be paid or entitled to payment without regard to any unit of time worked.

“In the case of an employee whose compensation is not determined on the basis of a fixed rate for specified periods of time, the employee’s hourly rate of compensation shall be the lowest hourly rate of compensation paid to employees in the same job classification as that of the employee or, if no employees in the same job classification have an hourly rate, the minimum wage as established from time to time under section 6(a)(1) of the Fair Labor Standards Act of 1938, as amended.” 29 C.F.R. § 2530.200b-2(b)(2)(ii)(C) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-D/part-2530/subpart-A/section-2530.200b-2#p-2530.200b-2(b)(2)(ii)(C) Thus, a working partner’s draw of as little as $7,250 might get 1,000 hours of service.

It’s unclear whether this concept (or any of the equivalencies 29 C.F.R. § 2530.200b-3(d)-(f) provides) applies to someone who is not an employee. But a plan’s administrator might interpret the plan to analogize methods for crediting hours of service for a nonemployee the Internal Revenue Code treats as a deemed employee.

One of my first thoughts was the equivalencies that are written into many plans, especially in the case where hours are not explicitly counted.  10 hrs/day, 45/week, 190 hrs/mo.

Is that subject to facts & circumstance at all?

Would it look discriminatory if you gave a partner credit for 1,000 hours if it can be shown he or she really did not participate in the business while convalescing?  Would an IRS auditor come in and say:  "show my that Priscilla was actively engaged enough to be credited with service even while she was out"?

The gist of it is that a participant gets the equivalent hours if they are paid for any hours in the relevant period.  That means they would need to have worked at least an hour for 100 different days, or one day during 23 separate weeks or one day during at least 6 separate months (depending on the method chosen in the doc.)

So, would the company have to show that the partner did indeed render services the appropriate amount of days, weeks, months?

Wow, BL at its best, thank you all for your comments even though I am not agreement with some of them (especially with no service/last day rule as lack of them would limit any amendments in the early parts of the year due to 411d6 - I am aware that many do not have the requirements). You all gave me very good thinking points to discuss with the client.

Just a few quick comments:

Peter, this is an LLC filing as a corporation, great idea and information, not going to work here

BG, on your last comment, equivalency is not an option however it may not necessarily be discriminatory as I have all non-HCE's fully benefitting but it is not an approach I am comfortable taking.

CB - adding a PS is not option just to have him get a benefit.

I will check on the disability but I was not told about any. Besides as you stated, tough one to prove.

Your time is much appreciated. Again, thank you all.