The IRS treats an employee who has not met plan eligibility requirements, but who has rolled a balance into the plan, as a "limited participant" (IRS Rev. Rul. 96-48). This person is excluded for coverage/nondiscrimination/top heavy purposes.

Is this employee reported as a participant on lines 6 and/or 7 of the Form 5500, as appropriate?

I have searched old posts and reviewed the Form 5500 instructions carefully, but have not been able to answer this question to my satisfaction.

It seems logical to report such a person, as they maintain a 100% vested balance and are owed future benefits from the plan.

I would include such a person in the participant count.

Check out the 2005 5500 instructions. They tried to clear this up but I don't think they did a very good job. I get the impression that they want you to include only the employees that have actually met the eligibility conditions of the plan. However, it is not definite in my opinion and I could understand the argument from WDIK's point of view.