Irrevocable Election Not to Participate

The plan is a SHNE 3% plan and Profit Sharing is each participant is it's own group. The participant signed an Irrevocable Election Not To Participate on 6/17/2016, her date of Hire was 11/7/2014 and eligibility was one year and dual entry, so her eligibility date would have been 1/1/2016. The plan is a service term and the new advisor is questioning that she should be included in coverage testing( in the 410B group shes in an excluded group) How should she have been listed in the 410 b group? Also, should she have received a SHNE 3% contribution for plan years 2016-2019?

Thanks!

If she properly elected irrevocably to be out of the plan, she is a non-benefiting employee for 410(b). My understanding was that the irrevocable election needs to be done prior to plan entry but I honestly haven't double checked that in quite some time, I could easily be wrong on that. In small plans, allowing irrevocable election to not participate can cause demographic failures that may be difficult to cure through retroactive amendments expanding participation. As for SH I'm not sure the implications on allowing a NHCE to irrevocably elect out of the plan, if it's an HCE you're fine, if it's an NHCE I honestly don't know what that does to your SH status.

Lou is right - the irrevocable election has to be provided before the participant first becomes eligible. Since this person became eligible on 1/1/16 the election signed in June 2016 is no good.

Even if the election had been executed correctly, the employee is still considered non-excludable for 410(b) purposes.

imho no one should ever use the irrevocable election. Whatever the employer's purpose in allowing it could be accomplished easier, and more in a more flexible way, using a class exclusion. 

Thanks, actually I was wrong about when she became eligible for the Plan, the client had her at 350 hours for 2015 so she would have not become eligible on 1/1/2016(since it was under 1000 hours)

Since the employee (assuming the one-time irrevocable election is valid) would not be eligible to defer under the plan, I don't think not providing him or her the sh contribution would invalidate your safe harbor status.

On ‎11‎/‎3‎/‎2020 at 12:22 PM, C. B. Zeller said:

imho no one should ever use the irrevocable election. Whatever the employer's purpose in allowing it could be accomplished easier, and more in a more flexible way, using a class exclusion. 

At least theoretically, C.B. Zeller, if the excluded employee negotiates with the employer about the class exclusion, you could have a nonqualified cash or deferred election that could blow up the plan. I get it that that would be hard to prove or for IRS to discover on its own, but employees who have done these sorts of things have been known to leave on bad terms later and threaten to blow the whistle on this sort of thing, claiming they were pressured not to participate in 401(k) among other perceived wrongs.