We have a new 401(k) plan that is to become effective 7/1/2007. The employer wants to have a 21 & 1 requirements with semi-annual entry. In addition to the doctor, they have 2 ee's hired 9/06 and 1 hired 4/07. They want to have the 2 2006 hired ee's in the plan as of 7/1/07, but impose the 21&1 on the 2007 hire ee.

Would writing the document to say that "any employee working for the company on 1/1/07 is eligible for the plan on 7/1/07" be acceptable? Using a date (1/1) prior to the effective date (7/1) in order to bring people in?

Thanks

It might be simpler to just have the plan have a retro original effective date of 1/1/07 to go along with a 1/1/07 exception to the 21&1 eligibility rules. Otherwise, what you're proposing looks discriminatory to me.

You did not tell us when the Dr.'s date of hire was. That could be helpful in the analysis.

I like the retro effective date suggestion.

Or thinking out loud, another option would be a 9 month exception for those in employment on 7/1, which puts the '06 employees in immediately but makes the '07 employee wait another 6 months. Upside is it lets you stay w/ 7/1 date but downside is it lets the '07 employee in 3 months sooner.

Why make it difficult. Use 1/01/07 for effective date and allow anyone employeed to be in. I don't see the point in having eligibility of 1 year for deferrals. If the doc is so stingy not to share the wealth, use the one year for employer contributions (SH, match, ps).

Your original idea doesn't pass the smell test. If plan is effective on 7/01 it looks very discriminatory to use those employeed on 01/01.

count all prior service: Nine month of service with semi-annual entry gets the 9/06 hires in the plan on 7/1/2007. Same eligibility gets the 4/07 hire in on 7/08 (assuming not a 4/1 hire). Almost the 21 and 1 but because of the hire dates it basically serves the same purpose.

First, when wouldn't you count all prior service? All service with the employer counts for eligibility (except for break-in-service provision in the plan).

Second, if you go with an open enrollment solution (i.e., allow anyone employed on 1/1/07 into the plan on 7/1/07) you may have a coverage issue if one of the original employees fails to eventually earn a year of service. Coverage testing would require the using the least eligibility requirement imposed by the plan.

Third, if you use the nine month approach (i.e., eligibility is age 21 and nine months of service) an employee is not required to earn any hours of service to be eligible to enter the plan - just be employed 9 months after their initial hire date. This allows part-time employees to participate in the plan where a 1-year/1,000 hours requirement may keep them out. Does this change how the doctor expects the plan to operate?

The the employees other than the doctor are NHCE, so would there really be a discrimination problem by having everyone currently employed on 1/1/07 immediately eligible 1/1/07, while keeping the 4/07 employee out for less than 1 YOS?

We are using a prototype document so having less than 1 year of elgibility service means no 1000 hours requirement, and opens the door for part-timers, which the doctor does not want.

He'll be OK with 1/1/07 PS eligibility, with 7/1/07 401k effective date and that should solve the elig. problem. However, if he wants this to be a safe harbor 401(k), can he still do that in mid-year since the plan would be effective 1/1/07? Also, I believe if it is a safe harbor, he would have to make the 401 and s/h effective later than 7/1/07, since we are less than 30 days away from that date, correct?

Thanks for all replies