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Waiving Eligibility Temporarily


BLM

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IS THIS ALLOWABLE?

An on-going calendar year 401k plan (no employer contributions) with ordinary eligibility = Age 21 and 1 YOS with Quarterly Entry Dates -

Plan waived the eligibility requirements as follows:

If you are an employee on 11/1 (regardless of age or service) you may enter the plan and begin 401k deferrals as of 11/6. Your opportunity to begin 401k deferrals expires on 12/6.

If you have not signed up to begin 401k deferrals by 12/6, and you have otherwise not satisfied the plan's eligibility requirements, you must then wait until you satisfy the ordinary eligibility requirements and may begin 401k deferrals on the entry date coincident/next following satisfaction of the eligibility requirements.

If you elect to begin 401k deferrals during this special/open period you will be considered an eligible employee and a participant in the plan. If you do not elect to begin 401k deferrals during this special/open period you will not be considered eligible and will not become a participant until you satisfy the eligibility requirements.

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I agree with rcline.

You are conditioning eligibility on contributing. I can't say for sure if it is discriminatory or definitely determinable or would take the plan out of prototype/volume submitter status; it is, at the very least, weird and awkward.

Does it make all that much difference if you let everyone employed on 11/1 participate, and those who elect not to contribute just don't contribute? You can limit changes in contribution amounts to once a quarter or whatever.

Ed Snyder

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Isn't this the same question you asked in the other post a few days ago? You got some really good answers on that one. Again, you will have issues in nondiscrimination testing, since there is no safe harbor/employer contributions. You will have issues if any of these new hires are HCEs.

This Is NOT a good idea...if this already happened and there was no plan amendment, you might be looking at some kind of correction -- either refunding those who should not have become eligible or making them all eligible but choosing not to participate. I would suggest running your ADP test with all of those as 0% but eligible and see where you stand. This might require some excess contribution distributions to HCEs (which is why I am thinking this question is being posed since about now would be when someone would notice the nondiscrimination test is wrong and they are now trying to exclude the noncontributing claiming they aren't eligible)

You need to look at anti-parity(?) rules and whether eligibility can be given and then taken away based on contribution choices. Your best bet would have been to make everyone eligible then have those hired after x date have to following the age 21/1 year service.

Again I will ask WHY you want to do this (or why it was already done)? That might help some of us help you with where to go from here.

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My take on this (and your previous post) is that you're doing this for a very specific reason that none of us can discern. Whatever it is, it doesn't seem to be for the exclusive purpose of providing benefits to participants. ERISA 404(a)(1)(A). And that's why you're not finding the answer you're looking for here. Food for thought.

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I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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