$0 Compensation Participant in the ADP/ACP Test and Form 5500 Participant Count

A company has a plan that runs from 1/1 to 12/31. It pays employees once a month on the first of the month. An employee is hired in December of 2020 (enters the plan right away as there is no eligibility condition) and has no pay through the end of year (he receives his first paycheck on 1/1/2021). So, the employee cannot possibly defer / receive a match for 2020.

Should this participant be included in the ADP/ACP test for 2020?

Also, should the participant be included in the active participant count for the Form 5500 purposes for 2020?

Thanks!

Personal opinion, others may disagree - but to include in ADP the person must be eligible to make a salary deferral for the year. Yes, technically the person may have entered the plan but since they were not eligible to defer any pay for the year I would exclude from testing. Re 5500, I would treat the same to be consistent, but it probably doesn't matter unless it's the difference between 120 and 121 total participants.

Also personal opinion, this is poor design. Immediate eligibility is fine, but knowing payroll is once a month on the first, why not make plan entry date the first of the month coincident with or next following date of hire? Administratively the same but avoids the confusion of your situation. And double check the document that it's not already like that - you mention no eligibility requirements but eligibility and entry are separate, albeit related, concepts.

I would suggest even though someone becomes a participant on the day they satisfy the eligibility requirements, their actual entry date is the first pay date after that.