Coverage test with allocation condition

The plan has a Profit Sharing contribution (new comp) with allocation conditions of 1,000 hours and employment on the last day of the plan year, with a waiver of these conditions in the event of death and attainment of Normal Retirement Age (NRA).

While generating the Coverage Test, if a participant is reported as death and having less than 500 hours during the current year and received a Profit Sharing contribution, should this individual be treated as a benefiting (i.e., non-excludable) employee for coverage testing purposes? Or else, this employee needs to be excluded in coverage because of less than 500 hours? 

If there are no allocation conditions in the plan and death participant has less than 500 hours and everyone receives a Profit Sharing contribution, what is the applicable method of excluding in coverage test for less than 500 hours?

Could you also point to the relevant Treasury Regulations or other official guidance that explains this treatment in detail?

The statutory exclusion from coverage testing is for a participant who (1) terminated and worked 500 or fewer hours AND (2) did not benefit for such year by reason of such.

If benefited - must include regardless.

If no allocation conditions - must include regardless.

1.410(b)(6)(f) - these are "and" conditions meaning all must apply to exclude an employee from coverage testing.

(f) Certain terminating employees—(1) In general. An employee may be treated as an excludable employee for a plan year with respect to a particular plan if—

(i) The employee does not benefit under the plan for the plan year,

(ii) The employee is eligible to participate in the plan,

(iii) The plan has a minimum period of service requirement or a requirement that an employee be employed on the last day of the plan year (last-day requirement) in order for an employee to accrue a benefit or receive an allocation for the plan year,

(iv) The employee fails to accrue a benefit or receive an allocation under the plan solely because of the failure to satisfy the minimum period of service or last-day requirement,

(v) The employee terminates employment during the plan year with no more than 500 hours of service, and the employee is not an employee as of the last day of the plan year (for purposes of this paragraph (f)(1)(v), a plan that uses the elapsed time method of determining years of service may use either 91 consecutive calendar days or 3 consecutive calendar months instead of 500 hours of service, provided it uses the same convention for all employees during a plan year), and

(vi) If this paragraph (f) is applied with respect to any employee with respect to a plan for a plan year, it is applied with respect to all employees with respect to the plan for the plan year.

@CuseFanIn this scenario, since the death participant received a contribution, should they be included in coverage testing and treated as a non-excludable employee? Now, am I understanding that correctly?

If they benefit, you include.

Thank you @CuseFanand @Lou S. for helpful clarification.

However, I have a follow-up question regarding matching contributions with the same allocation condition mentioned above: If a participant died during the year and did not make any deferrals, they obviously wouldn’t receive a matching contribution. In this case, should the participant be treated as a non-excludable employee due to death waiver and consider them has not benefiting, or are they considered excludable for coverage testing purposes under less than 500 hours?

You have to treat him as benefiting since he actually qualified for that $0 match, rather than not qualifying for it.

Thank you all for such clear and helpful insights on this questions.