Non-excludable to excludable classification - Eligibility question

The plan excludes partners from participation. One associate was promoted to partnership on Oct 1. The plan provides for a discretionary profit sharing contribution to all eligible participants who complete 1,000 hours during the year and are employed on the last day of the year.

Can we allocate a PS contribution to the associate based on his earnings from Jan 1 through Sept 30 or is it the participant excluded because he is a partner as of December  31?

Unfortunately the plan document is silent with respect to how to deal with EE's who are participants and then become part of an excluded class (it is in individually designed plan).

This is one of those areas where the "Plan Administrator is solely responsible for interpreting the terms of the plan".  You could argue that the most reasonable approach would be to allocate the contribution based on Compensation received as an associate.  This would protect his right to receive an accrual after we worked 1000 hours as an associate.  This argument could easily be discredited by the "last day rule"; since 'technically' no one has accrued the right to an allocation.  Along those lines, it "MAY" be a perfect time to create a 'clarifying' amendment to address this issue; (e.g. what to do with associates who became partners during the year).

Good Luck!

We have run across this same issue in plans with allocation groups - as of what date is group status determined? We now specify that in the document (usually first day or last day of plan year).

the LRM issued 10/2011 (language required modifications) had the following

This information package contains samples of plan provisions that have been found to satisfy certain specific requirements of the Internal Revenue Code, taking into account changes in the plan qualification requirements, regulations, revenue rulings, and other guidance in the 2010 Cumulative List of Changes in Plan Qualification Requirements (Notice 2010-90, 2010-52 I.R.B. 909). Such language may or may not be acceptable in different plans depending on the context in which used.

bears to the total compensation of all employees in the group. In the event that an eligible employee is included in more than one participant allocation group, the participant’s share of the employer contribution allocated to each such group will be based on the participant’s compensation for the part of the year the participant was in the group.

I would suggest re-reading the document.  I can't remember the last time I saw a document that didn't address this some place.  As  noted it might be on the compensation definition or it might be  in the definition of an "active" participant or in the allocation section. 

Failing that I agree this one be one of those areas the PA can use their discretion.