Am I correct to say that if an employee terminated in 2006 with less than 500 hours, that they should not be included in the New Comp Nondiscrimination Testing?

Thank you, AJM

this depends on what portion of the testing you are talking about.
if its a 401k plan, such people could have deferred, and so they would show up in the avg ben pct test.
for the nondiscrim classification test they would be excluded (assuming terminees with less then 500 hours do not benefit. This is actually an optional rule, so you could include them if you wanted to, and it would help testing if they were an HCE.
If you are talking about a controlled group, the actual rule requires you to be a 'participant' so sometimes terminees with less than 500 hours are still included if you are performing the test on the plan they are not a member of.