Changing from eligible to excluded class

The plan excludes "seasonal" employees. If an employee goes from working 1000 hours a year and being eligible to then working less than 1000 hours and becoming labeled "seasonal", do they then become ineligible to contribute? If so, upon what day are they considered ineligible? For example, the life guard worked 1001 hours in 2017 and entered the plan on 1/1/18 (semi-annual entry dates), but then the next summer he only worked 600 hours. Can he become ineligible on 7/1/18, or do you have to complete the year in order to see total hours and then he becomes excluded on 1/1/19? 

To me the flaw (problem) here is you are linking hours to the job classification seasonal. 

I think that is an illegal back door hours requirement.  Or you are not describing how the document is really written.  I doubt an attorney or a prototype would link the two.  

Either a person is or isn't seasonal.  Either seasonal employees are included or excluded.  I do seem to recall the IRS isn't too keen on the seasonal thing but I am not 100% not sure.  The better way to write the plan is to exclude lifeguards as a class for example. 

But if a person is in an excluded class they never enter the plan.  If they work >1,000 hours they will be a factor in things like coverage testing but they simply never enter the plan.

I think you need to go back and re-read the plan.  Are these people really an excluded group?  If so, why do you think they would enter the plan if they are in an excluded classification?   How is the excluded group defined?  

I really think all of your problems are back at that step.   Once you solve if these people are in an excluded class or not it solves all your questions.  It might add the problem the plan struggles to pass coverage but that is a future conversation. 

To some degree I am not sure you aren't mixing up the coverage rules that say when a person is a factor in the test and rules/plan provisions that say when a person enters the plan.

I had the same initial thoughts as ESOP Guy. I'm assuming you're the TPA here. The sponsor/employer should not be leaving it to you to determine whether or not an employee is "seasonal" -- they should be telling you which employees are "seasonal", and that determination had better be independent of how many hours the person worked.

Debbie,

I believe it is in the terminology used. There are valid exclusion categories - the most common being union employees and nonresident aliens.

part time or seasonal is a not a 'valid' category, but I have seen documents that use the term to exclude bodies not expected to work 1000 hours, but my understanding is if they ever work 1000 hours, then they are in and can't be excluded even if their hours drop below 1000 hours.

so you could have a plan with 3 months eligibility, but it excludes 'seasonal' folks - folks never expected to work 1000 hours in a year, but once they do, they are in.

I believe the following is language from a Corbel document.

As usual, Tom is spot on. "Seasonal" is an hours or other time based classification similar to part-time, temporary, etc. and you cannot categorically exclude such employees, but you can hold them out unless/until they work 1000 hours in a computation period. As noted, the plan document must provide for this and once in, always in, unless truly in a proper category of ineligible employees.

Once eligible, always eligible.

Debbie A., I think the above gives you your answer re "seasonal" and the limits of 410(a) exclusions, but note that, at least in theory (your preapproved plan may or may not permit), you could exclude "lifeguards," or "lifeguards position A," or "lifeguards at pool B," or whatever, and that would be ok. Then an excluded lifeguard would be excluded regardless of his/her hours, even if it were the case that the excluded lifeguards' hours tended to collect demographically at under 1,000 hours.