How to Count Participants

General

Plan participants must be counted because Flat-rate Premiums are based on the number of participants. In addition, the number of participants for the prior plan year affects when a filing for the current plan year is due (see "When to File" section). The date on which participants are counted is called the "Participant Count Date."

Participant Count Date

The Participant Count Date is the last day of the plan year preceding the Premium Payment Year except as follows:

If the plan is a New Plan, the Participant Count Date is the first day of the Premium Payment Year (i.e., the effective date).
If the plan is a Newly-covered Plan, the Participant Count Date is the first day of the Premium Payment Year. This is the case even if the plan first became covered under ERISA section 4021 after the first day of the Premium Payment Year.
If the plan is the transferee plan in a Merger or the transferor plan in a Spinoff to a New Plan, and the transaction meets the conditions described below, the Participant Count Date is the first day of the Premium Payment Year. A plan Merger or Spinoff (as defined in the regulations under section 414(l) of the Code) is covered by this rule if:
a Merger is effective on the first day of the transferee (the continuing) plan’s plan year, or a Spinoff is effective on the first day of the transferor plan’s plan year, and
the Merger or Spinoff is not de minimis, as defined in the regulations under section 414(l) of the Code with respect to Single-employer Plans, or in PBGC’s regulation under ERISA section 4231 (29 CFR Part 4231) with respect to Multiemployer Plans.

The following examples illustrate the determination of the Participant Count Date.

Example 1 – An ongoing plan changes its plan year from a calendar year to a plan year that begins June 1, effective June 1, 2011. The Participant Count Date for the:

January 1, 2011 – May 31, 2011 plan year is December 31, 2010,
June 1, 2011 – May 31, 2012 plan year is May 31, 2011.

Example 2 – A new calendar-year plan is adopted February 18, 2011, retroactively effective as of January 1, 2011. The Participant Count Date is January 1, 2011.

Example 3 – A new calendar-year plan is adopted January 1, 2011, effective April 1, 2011. The Participant Count Date is April 1, 2011.

Example 4 – Plan A has a calendar plan year and Plan B has a July 1 - June 30 plan year. Effective January 1, 2011, Plan B merges into Plan A (and the Merger is not de minimis). Because the Merger occurred on the first day of Plan A’s 2011 plan year, Plan A’s Participant Count Date for the 2011 Flat-rate Premium is January 1, 2011. Note that the Participant Count includes Plan A participants that used to be covered by Plan B.

Example 5 – Plan A has a calendar plan year. Effective January 1, 2011, Plan A spins off assets and liabilities to form a New Plan, Plan B (and the Spinoff is not de minimis). Plan A’s Participant Count Date is January 1, 2011. (Plan B’s Participant Count Date also is January 1, 2011, since it is a New Plan that became effective on that date.)

Example 6 – A calendar-year plan that was not covered plan under ERISA section 4021 becomes covered on May 31, 2011. The first day of the Premium Payment Year is January 1, 2011, and the Participant Count Date is January 1, 2011.

Participant

For premium purposes, "participant" means an individual (whether active, inactive, retired, or deceased) with respect to whom the plan has Benefit Liabilities. Beneficiaries and alternate payees are not counted as participants. However, a deceased participant will continue to be counted as a participant if there are one or more beneficiaries or alternate payees who are receiving or have a right to receive benefits earned by the participant.

An individual is not counted as a participant after all Benefit Liabilities with respect to the individual are distributed through the purchase of irrevocable commitments from an insurer or otherwise. In addition, a non-vested individual is not counted as a participant after:

A deemed "zero-dollar cashout,"
A one-year break in service under plan rules, or
Death.

Cashouts

If the plan has a separate cashout provision for zero benefits, terminated non-vested participants are deemed to be cashed out as of the date specified in the deemed cashout provision or, if no date is specified, as of the employment termination date. If the plan provides that zero benefit amounts will be deemed to be paid as soon as possible, terminated non-vested participants also will be deemed to be cashed out as of the employment termination date.

If the plan does not have a separate cashout provision for zero benefits, but does have a mandatory cashout of small benefit amounts (e.g., benefits less than $5,000), terminated non-vested participants are deemed to be cashed out in the same manner as terminated vested participants. If the plan is silent as to the timing of actual cashouts of terminated vested participants, the plan is deemed to read "as soon as practicable" and the terminated non-vested participants are deemed to be cashed out immediately upon termination of employment. If the plan specifies a date as of which actual cashouts of terminated vested participants take place (e.g., on the first day of the next month), that rule also would apply to deemed cashouts of terminated non-vested participants. These rules do not apply if, despite plan language, the plan has an obvious pattern or practice of delaying distributions for long periods of time.

Example – Suppose a calendar-year plan provides that if a participant terminates employment and the participant’s vested benefit has a value of less than $5,000, the plan will pay the vested benefit to the participant in a lump sum as of the first of the month following termination of employment. Suppose further that no plan provisions specifically address payment of benefits upon termination of employment by non-vested participants. If a participant with a non-vested accrued benefit terminates employment on December 15, 2010, the participant will be included in the Participant Count as of December 31, 2010 (because the cashout is deemed to occur on January 1, 2011, the first of the month following termination of employment). If, as is typically the case for a calendar-year plan, the plan’s Participant Count Date for 2011 is December 31, 2010, a Flat-rate Premium must be paid for this participant for 2011.

Breaks in service

A non-vested individual ceases to be a participant for premium purposes when the individual incurs a one-year break in service under the plan.

Note that if the break in service occurs in a service computation period that coincides with the plan year preceding the Premium Payment Year, we treat the individual as not being a participant for purposes of determining the premium for the Premium Payment Year.

Example 1 – A calendar-year plan with five-year vesting provides that a participant who performs 500 or fewer hours of service in a service computation period incurs a one-year break in service as of the last day of the computation period. The plan also provides that the annual service computation period begins on the anniversary of a participant’s date of hire.

Consider an employee who was hired on December 1, 2006, and terminates employment on February 1, 2010. Further assume that this participant does not perform more than 500 hours of service during the December 1, 2009 – November 30, 2010 computation period. This participant incurs a one-year break in service on November 30, 2010. Since the break occurred before December 31, 2010 (the Participant Count Date for the 2011 premium), the individual would not be included in the Participant Count for 2011.

Example 2 – A calendar-year plan provides that a participant who performs 500 or fewer hours of service in a service computation period incurs a one-year break in service as of the last day of the computation period. The plan also provides that the annual service computation period is the calendar year.

Consider a non-vested employee who does not perform more than 500 hours of service during the 2010 calendar-year computation period. This participant incurs a one-year break in service on December 31, 2010. Although the break occurs on the Participant Count Date for the 2011 premium, the individual would not be included in the Participant Count for 2011.

Comparison to Form 5500

The Participant Count for Flat-rate Premium purposes for the Premium Payment Year and the number of participants reported for item 7 of Form 5500 for the plan year preceding the Premium Payment Year (e.g., the 2011 premium filing and the 2010 Form 5500) are generally determined as of the same date (i.e., the last day of the plan year preceding the Premium Payment Year). However, the two counts may differ. For example:

For Flat-rate Premium purposes, individuals who are earning or retaining credited service but with respect to whom a plan has no Benefit Liabilities are not counted as participants. But individuals who are earning or retaining credited service are considered to be participants for purposes of item 6 of the Form 5500, even if the plan has no Benefit Liabilities with respect to them.
There is a difference in the break-in-service rules that apply when counting participants for Flat-rate Premium purposes and for purposes of item 6 of Form 5500. For purposes of item 6 of Form 5500, whether a non-vested individual is excluded from the count because of a break in service depends upon the plan language; under the provisions of most plans, the instructions for item 6 would require that a separated non-vested individual be counted as a participant until the individual has incurred five or more consecutive one-year breaks in service. For premium purposes, on the other hand, a non-vested individual is excluded from the count because of a break in service when the individual has incurred a one-year break in service under the terms of the plan.