FAQ 588: 410b--Disaggregated test-Employee incorrectly treated as statutorily excludable

Problem: When disaggregated coverage testing is performed for the plan, John Smith is being treated a statutorily excludable participant. However, he should not be. I can find no reason why he is being excluded. Please advise on how to not have him disaggregated. Thanks.

Solution: When the system calculates the one year/21 disaggregated group, it uses the same logic as it does when it determines eligibility for 1yr/21/dual entry. Eligibility is based on the eligibility computation period, which is the 12-month period from the employee's date of hire to the anniversary of their date of hire. To correctly calculate the hours worked during this period, the system prorates the plan year hours over the hire to hire period, and only reverts to a plan year when they have hit the 1000 hours in the eligibility computation period. Here is the calculation that shows why the employee has fewer than 1000 hours and will enter 1/1/2007, according to the system's calcultion method: 3/01/2005 to 12/31/2005 hours: 629 1/1/2006 to 12/31/2006 hours: 1596 1/1/2006 to 2/28/2006 hours: (1596/12)*2=266 hours 2/28/2005 to 2/28/2006 hours= 629+266= 895 hours not eligible as of 7/1/2006; will enter 1/1/2007 If you believe that the participant should be in the >1yr/21 group, code the hours in the history record as 900. This will prevent any vesting credit for the year, but will allow for enough hours so that the proration will be over 1000 hours for the eligibility computation period.