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Immediate Eligibility for Doctors - Not Staff?


ERISA1

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Do you see any problem in writing an eligibility rule as follows?

"Non-Shareholder Physicians are eligible immediately; all others must complete one Year of Service."?

The physicians will likely be HCEs within a year or two; but since they can't be HCEs in year one, it seems to be a viable approach. Any disagreements??

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rcline --

"No eligibility for anyone" when you do testing? What exactly do you mean?

Frankly, since the non-shareholder docs are not owners when hired, they are not HCEs. You can discriminate among NHCEs, so I don't see why you can't bring the docs into the plan earlier than other staff.

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Even if it is legal, I question whether it is worthwhile beyond the first year. At this point and with the limited info, it is hard to say.

I think that consideration has to be given to things like number of participants at inception, add rate of new Drs, turnover rate of both Staff and non-shareholder Drs, take up/participaton of Staff after 1st plan year.

With poor participation by disgruntled Staff and high turnover of Drs, I do not see a viable plan after 1 or 2 years. I wonder if the promoter of this plan design promoter has any plans that have been successful beyond 2 years ?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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When you have dual eligibility rules, your coverage and non-discrimination testing must use the least restrictive rules. Therefore, if you let the docs in, when it comes to 410(b) and 401(a)(4) testing, you must include those not yet eligible as -0- in the tests.

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Suppose a Doc comes into such a plan on day 1 of hire, but works only 900 hours that first year, earning $120,000. For year 2, she's now an HCE and eligible for the plan, while NHCEs hired at the same time and that have worked 900 hours their first year are not eligible. That looks to me like a discrimination problem in such a year 2.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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John --

This stuff gets more convoluted by the day!! First, it's clearly a 410(b) issue. Second, it probably is also a 401(a)(4) issue (see--I've come over to the dark side after all!!) and would be subject to effective availability testing--but, if she's not an HCE until year 2, I think it would make a difference in the "fluffy" effective availability testing that an NHCE hired the same date as her would probably be in the plan at virtually the same time as she is anyway.

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Oh, I was thinking the Doc, now an HCE in year 2 due to year 1 earnings, would be eligible in the plan for year 2 (as well has for year 1) despite never having had a 1,000 hour year.

The NHCE hired the same day as the Doc and working the same number of hours would not be eligible in either year 1 or year 2 because the NHCE had not yet earned an eligibility year of service as required of non-Docs.

It is very dark on this side!

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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You're right about the now HCE being in the plan both years without ever having a 1,000 h/s year. But, if the NHCE enters the plan about the time the doc becomes an HCE, I don't see an effective availability issue. On the other hand, if the non-doc was hired after 7/1/08 and therefore didn't get into the plan until 1/1/10 but the doc (hired about the same time) was an HCE for 2009, then there may be an (a)(4) issue as a result of the 2-level partcipation standard (contrary to what my evil twin may have said in earlier posts).

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Viable for a year, after that I think one demographic or another will likely doom it. And an amendment after that first year to require an eligibility year of all (or eliminate it as to all) would likely face 1.401a4-5 scrutiny.

Final analysis: Not viable.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Viable, if demographics are right. Or, at a minimum, the saving grace is that it's correctable under the 401(a)(4)-11(g) regs. to bring it into compliance--again, if demographics and $$ work out and client is willing to correct.

I've seen a comparable, but not identical, approach used with groups comprised only of physicians--e.g., anesthesiologists, pathologists, radiologists--where the 401(k) side is open only to non-shareholders and PSP is only for shareholders (with 2-year wait and full vesting). So, all NHCEs are 401(k) participants (clearly ok), and only e'ees who meet PSP service requirement and benefit under the PSP are HCEs (after 2 y/s, docs are either shareholders or gone). which also is ok 401(k) & PSP are treated as separate plans, so 410(b) testing can be done separately for each side.

But, absent good facts, a 2-level eligibility provision as described in the OP is doomed if 401(a)(4) effective availability for eligibility is tested and not corrected. But I still think that 410(b) is the only practical test that is necessary in such a scheme--and that it is the only test an IRS auditor would expect to see. So, if 410(b) is passed (i.e., 70% of your NHCEs benefit under the plan)--or, if not passed, if it's corrected under the (a)(4) regs (hopefully, at not too great a cost)--then, despite the 2-level eligibility, you'll be ok without having to deal with effective availability testing. But, the client needs to know the demographic considerations that come into play and be willing to take the risk that correction under the regs might be necessary.

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Not viable...

This speaks to benefits, rights, and features as well. While the doctors entering the plan are NHCE due to no compensation in the prior year, you must look at the "CLASS" of doctors. It is an entry date option provided to this particular "CLASS" that is not provided to other classes of employees.

How many HCEs are in this CLASS of doctor? How many NHCEs?

How many NHCEs are in other CLASSES that are not doctors? How many NHCEs?

You likely fail benefits, rights, and features be providing more favorable entry date options to a discriminatory CLASS of employees.

As far as testing under an average benefits test while using the least restrictive date, you are still allowed to separate test the early entrants who are NHCEs. I would not bring this into the equation. Purely BRF by providing a entry date to a class that is predominately HCE.

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Perhaps I overlooked it, but did anyone state what type of plan? DB or DC? One of the attractive aspects of a DB plan is its ability to cover service retroactively, so having a delayed entry date for everyone makes the above discussion irrelevant. Therefore, my recommendation is twofold: adopt a DB plan; hire an actuary.

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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I think it's viable but I wouldn't do it. It's the kind of thing that could wind up on the pages of the WSJ, or worse, at some Congressional hearing.

I'd figure something out with multiple plans (one with immediate eligibility) or maybe amend the plan as needed to let individuals in right away. Or just say "No, get over it."

Ed Snyder

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What is the concensus ? Viable or not viable ?

Looks like no concensus, George. Some posters hold it is viable, others not.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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I like Bird's "Get over it" approach. Unfortunately, docs don't like to hear that and generally refuse to listen to it . . . so, I think that one's not viable.

But I certainly would shy away from the "amend the plan as needed" approach (although I see it used).

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Larry,

Shying from the fluffy--"It's not dark yet, but it's getting there" Bob Dylan, Not Dark Yet, Time Out of Mind (1997).

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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