We administer a small pension plan sponsored by a medical group. The three physicians in the group want to allow their children to work part time.

Currently, the pension plan has no age or period of service requirement. One of the doctors has his two children (ages 11 and 13) doing filing 3 hours a week. They have no problem with them being covered by the plan.

Generally, we have told employers that they cannot consider employees under age 14. However, in reading the department of labor Federal Labor Standards Act on-line, they indicate there is an age exception for children working in a business for their parents.

For plan purposes, we think there could be a potential discrimination in operation issue. That being a 13 year old son or daughter could work and be a participant in the pension plan, but an unrelated nonhighly compensated employee age 13 could not even be employed and therefore not be considered for participation in a qualified plan. We are inclined to amend the plan to have an age requirement.

Has anyone experienced this before?

Why is this discrimination related to the plan instead of employment? In other words the employer can choose to hire anyone he wishes under state law and can hire family members over non family members (thats why there is an exception in the labor laws for children.) The fact that new hires are family members is not discriminatory under 410. Under your theory a business owner could not hire a spouse but would have to hire a stranger because he cannot give preference to a family member under the plan.

mjb

Thanks for the reply.

I dont think the discrimination issue is preference of hiring a family member over a non-family member. Instead, it would be the fact that the plan could not possibly cover a participant under age 14 other than a family member. You make a good point though. Why would the plan be discriminatory rather than the employer to begin with? And of course the exception apparently applies to the employer.

mjb is exactly on point.
Another point: 1000 hour rule? vesting? will any real benefit accrue to these children?
BTW, is this a DB or a DC plan?

It is a DB plan.

The plan requires 1 hr for benefit accrual but has a six year vesting schedule requiring 1 hr for a year of vesting. This is an unusual design but they want it that way and dont mind employees immediately entering the plan.

The kids might make $2,000 -$3,000 per year so the benefit will be minimal. Not that it matters in this case, but as long as they accrue benefits of at least .5% of salary, benefits are meaningful.