In the context of coverage testing, which of the following is NOT considered an excludable employee?

The correct understanding of the question hinges on the criteria used to designate an employee as excludable for coverage testing within a 401(k) plan context. Excludable employees are generally those who do not meet certain service requirements or are not actively employed at specific testing periods.

An employee who is actively working is not considered an excludable employee for coverage testing. This is because active employees are typically included in the testing to ensure that the plan offers coverage to a sufficient number of employees in accordance with nondiscrimination rules. Inclusion in coverage testing seeks to evaluate whether the plan benefits a diverse group of employees, rather than skewing toward higher-paid employees only.

In contrast, employees who have terminated employment or have less than the required service hours are excludable because they do not fulfill the criteria necessary to be tested for coverage. Similarly, employees with inadequate service hours also fall into the category of excludable due to not meeting the minimum hours required to participate in the plan.