yet another otherwise excludable question

Firm acquires another practice location and recognizes prior service for purposes of plan eligibility and employer match allocations.  (The Plan has 1000 hour/last day rule for match.)

Plan uses acquistion date for other purposes in the Plan (i.e. vesting).  The hire date in the client's census records is the acquistion date.  Plan entry dates have been overridden for these folks so that the vesting will track properly. 

For purposes of the ADP/ACP testing the system is putting these participants in the otherwise excludable group due to the overridden hire dates.  I'm not sure they should be in the otherwise excludable group.

Should I override that as well and have them in with the nonexcludables?

Thoughts? 

Thank you in advance.

A participant's inclusion (or exclusion) from ADP is tied to eligibility service (as opposed to vesting service).  So, I think you just answered your own question :-) 

Good Luck!

my understanding of the 'otherwise excludable' rule was:

did the plan bring people into the plan earlier than they needed to, and if so those 'otherwise' those folks would have been 'excluded'

51 minutes ago, Tom Poje said:

my understanding of the 'otherwise excludable' rule was:

did the plan bring people into the plan earlier than they needed to, and if so those 'otherwise' those folks would have been 'excluded'

True, but the plan defines service for eligibility.  The plan can define a year of service as merely working 1 hour.  When a participant works that one hour, he has a year of service under the plan; and that it what counts.  The fact that he met that year 999 hours sooner that he would have had the plan defined a year as 1000 hours does not appear relevant.    It would be different if the plan said 'these employees are allowed immediate entry regardless of their service'; but, that's not what happened.  Instead, the plan said 'these participants have this much service.'  

Good Luck!

ok - I did not mention that the eligibility in the plan is 12 months, 1 year of service (defined as 1000 hours in the 12 month period).  Entry dates are normally quarterly.

If I understand what ETA is saying, then because those with the prior practice who already had 12 month over 1000 hours are being allowed into the Plan as eligible, then they are considered nonexcludable? 

However I see Tom's point as well because if the plan did not recognize the prior service then these folks would have had to wait 12 months and work over 1000 hours before they entered the plan.  In essence, they did enter the plan earlier than they needed to due to the acquisition.

Correct.  I'm saying that because they have a year of service defined under the terms of the plan, they are not excludable.  Had the plan not defined the years of service in that way, but merely let them in; despite not having a year of service, then they would've been otherwise excludable.  The determination of whether an employee is otherwise excludable references the age & service requirements in Section 410(a)(1) of the Code.

OAN: There has been some debate over the past whether the statutory entry dates in 410(a)(4) of the Code (e.g. semi annual entry) could be used, even when a plan's entry dates are sooner.  That's another topic altogether.  But, for these purposes, I think how a plan actually defines a year is important. 

Good Luck!

in regards to whether a plan could use statutory exclusion dates, the IRS did issue a memorandum a few years saying "yes, no matter what your plan entry dates are, you could use the maximum. see enclosed. (e.g. 1st day of year or 6 months after completing 1 year)

I was curious to see what was in the big book, so.....

in the ERISA Outline Book Chapter 8 Section VIII Part B 2f

would granting of service with a prior employer preclude treatment as otherwise excludable?

if prior service 'must' be credited under the predecessor employer rule of IRC 414(a)(1), then YES because the successor employer is really a continuation of the predecessor employer.

if prior service is granted 'optionally' (under 414(a)(2) then probably YES, but if they wanted to use otherwise excludable it would be a better approach not to provide prior service and simply allow the plan to have a shorter eligibility period for these employees.

But the IRS has never indicated on way or another.

but the 'optional' position gets back to my point, the plan could have done things another way and therefore as such the people wouldn't have entered and so that is how I end up 'since they could have been excluded they are otherwise excludable'

but I can accept someone taking either position.

But my copy is 2012, so maybe the write up has been changed

OE memorandum.pdf

Here is an old discussion on the subject.