dental layoffs due to Coronavirus - maybe rehiring?

I know this is way early for this discussion, but here goes anyway...

Just had a dentist call to say that he is following the ADA recommendation and basically shutting down for the next three weeks.  Since his employees don't want to use their vacation days and prefer to collect unemployment, he is going to give them what they want and fire them (NY is waiving the usual one-week waiting period for unemployment benefits).  He intends to rehire them all in about a month, but was concerned about what effect it might have on the plan.

Obviously, they can't defer while they're not paid, and they don't have plan compensation during this period so their end-of-year safe harbor and profit sharing will end up being lower.  For those normally working just over 1,000 hours per year (and if that's a requirement for a profit sharing allocation), they might fall below the threshold and it could cause a problem with 410(b) testing.  And... what if he doesn't hire them all back?  I know partial plan termination is partially facts & circumstances, so maybe this could be argued, but I'm thinking this might come into play if he lets go 7 and rehires 4 because business is slow to restart.

According to this dentist, this is going to be a common situation for many small dental practices, so I figured I'd toss it out here so we can start discussing it.

At least he asked. 

Sounds like you are discussing a severance of employment.  The plan defines that as a distributable event, doesn't it?  I think partial termination would occur immediately, but you should check the guidance.  Others probably can contribute additional concerns.

As far as 410(b), I don't see that as a big problem. Just do a retroactive amendment - sounds like that what he would want anyway? Or, since plenty of time, amend to reduce the hours requirement if "just barely passing" 410(b) would leave out some folks he wants to include.

1 hour ago, AlbanyConsultant said:

I know this is way early for this discussion, but here goes anyway...

Just had a dentist call to say that he is following the ADA recommendation and basically shutting down for the next three weeks.  Since his employees don't want to use their vacation days and prefer to collect unemployment, he is going to give them what they want and fire them (NY is waiving the usual one-week waiting period for unemployment benefits).  He intends to rehire them all in about a month, but was concerned about what effect it might have on the plan.

Obviously, they can't defer while they're not paid, and they don't have plan compensation during this period so their end-of-year safe harbor and profit sharing will end up being lower.  For those normally working just over 1,000 hours per year (and if that's a requirement for a profit sharing allocation), they might fall below the threshold and it could cause a problem with 410(b) testing.  And... what if he doesn't hire them all back?  I know partial plan termination is partially facts & circumstances, so maybe this could be argued, but I'm thinking this might come into play if he lets go 7 and rehires 4 because business is slow to restart.

According to this dentist, this is going to be a common situation for many small dental practices, so I figured I'd toss it out here so we can start discussing it.

We have had similar phone calls and decisions by some of our dentists (and probably more that I haven't heard of yet).  

First, he doesn't have to FIRE them; he can put them on an unpaid leave of absence,  subject to recall. They will still be eligible for unemployment benefits.

As to the effect on the plan, almost definitely they will have a lower deferral, and maybe even more than just the missed weeks as they may need what they would have deferred in the weeks when they come back to recover from the weeks without full pay.

I would suggest you can deal with the possible shortage on the 1000 hours by amending the plan for this one year to use a lower hour requirement (the amount to use would take into the hours not worked because of the layoff).  If he didn't hire people back, I would more than likely suggest we treat it as a partial termination and fully vest those folk.  But if he plans on calling them back still, I would continue to treat them as on a LOA and not have to fully vest UNTIL client actually decides he is terminating them (not expecting to hire them back). 

Lastly, if they don't have 1000 hours, why is that a 410b problem?  My brain may not be functioning at 100% today, so maybe I'm missing something.

34 minutes ago, Larry Starr said:

Lastly, if they don't have 1000 hours, why is that a 410b problem?  My brain may not be functioning at 100% today, so maybe I'm missing something.

Most of the NHCEs are part-time and some work in the 1,000-1,200 hour range.  If 1,000 hours are needed to get the profit sharing allocation and they now fall below 1,000 hours, they may have a 410(b) issue.  Yes, there's a fail-safe provision because this is the annoying cross-tested plan that still insists on having a 1,000 hour requirement written into the plan document, so it's not a real problem (at least in this plan), just something to be aware of in general.

But the lower hours threshold for this year would solve that handily.

Thanks to everyone for the ideas.