I think i know the answer to this, but need a little confirmation. If a participant terminates with less than 500 hours (therefore not receiving PS alloc), but was eligible for deferrals, does the participant need to be included in the average benefits test?? Thanks.

yup

follow up question....if this was a safe harbor plan, and this terminated person with less than 500 hours received a 3% safe harbor contribution (but no Profit Sharing), then do they have to be included in the rate goup test?

Another yup.

The reasoning (which I find peculiar) is that the person is considered an employee and employees must be in the test. An employee is a person who benefits under the plan. The person gets an allocation (albeit 3%), is therefore an employee, and therefore must be in the rate group test. Yup, thats someone's thought process.

and since the ee received 3% SHNEC which is a type of nonelective, the ee must have an additional contribution if necessary to receive the gateway as well...