LTPT - again!

Self-check due to severe brain cramp - so, suppose a plan has eligibility requirements of 3 consecutive months with at least 250 hours. Let's make it easier and say age 21. The plan also excludes part-time employees. Part-time employees are DEFINED as per diem employees - they are not defined by hours.

All the "part time" employees work <1,000 hours in a year.

So, since the LTPT rules do not permit an exclusion category as a "proxy" for avoiding the LTPT rules based on an age or service condition, it would seem that this exclusion class is not valid for avoiding LTPT deferral eligibility if such an employee satisfies the 2 consecutive year/500 -999 hour/age 21 requirements, although it should be ok for employer contributions, subject to testing.

Or, if someone satisfies the "normal" eligibility of 3 months/250 hours, even though they are excluded, do they NEVER become LTPT, because they have satisfied the less stringent normal eligibility requirements? 

The way I look at this is, if they are an excluded class - the regular eligibility is irrelevant, so they never actually "achieve" eligibility status, so LTPT would still kick in.  Can't think of a reason why it would be otherwise.  But then again, I bet I can trap you into admitting that the exclusion is service based, and therefore impermissible in the first place....

Dealing with per diem employees is challenging particularly when measuring service.  By definition, per diem employees do not punch a time clock so a plan with per diem employees typically specifies an hours equivalency or uses elapsed time.  In this case, since the plan uses hours to determine eligibility for regular employees, it would be seem reasonable to use the 10 hours per day worked as the equivalency for the per diem/"part time" employees.  If this is specified in the plan, then a per diem employee would meet the eligibility hours requirement for regular employees after working 25 days per month for 3 consecutive months OR by working 100 days during the year.

This close association between the designation of an employee as per diem and determination of hours under the plan makes it more challenging to argue that the per diem classification is not service based.  It doesn't help that part time is defined as per diem.  If per diem was defined as an employee whose compensation is a daily salary plus a fixed amount over and above the salary for expenses, then that could support an argument that it is the pay structure and not the hours that distinguish regular employees from per diem employees.  It also would help to use per diem as the classification.  Using part-time to define per diem employees is inviting scrutiny.

At the end of the day, no matter what label you slap onto them, they will still be considered by the IRS to be LTPTs. Since they are only allowed to defer, so let them! They will not be getting employer match or nonelective contributions. Make eligibility for deferrals date of hire and be done with wrangling over whether they met the hours requirement. But keep the age 21 and 1,000 hours requirement for employer contributions. If you think about it this way, you avoid a lot of gnashing of teeth and splitting of hairs over this issue.

Thanks all for the comments.