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Bri

Hoping this makes sense....Change eligibility?

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Client has had a DB plan for his self-employment venture he's run since 2015.  And a 401(k) plan. Now he's hired some employees for the first time as of 12-1-2018.

Under the plan's current adoption agreement, employees would be eligible for both plans as of 1-1-2020.  (Standard 1 year, age 21, dual entry.)  But there may be a request by these new employees to see if the 401(k) eligibility can be accelerated to something less than a year.

We're also thinking about changing the DB eligibility, too, to 2-year at some point during 2019.  Just want to make sure I don't have any weird issues.  If we do change to a two year wait, then I'd surmise (and let me know if I've messed up here, please):

a.  401(a)(26) is fine for 2019 and 2020, because nobody else has met the DB eligibility requirements.

b.  For 2019, the staff employees are otherwise excludable.  So they can be tested for their DC benefits separately against the otherwise excludable HCEs (none), while the statutory employee test only consists of one HCE.  So they both pass.  Staff might only need a 3% THM depending on what other employer contributions are in play.

c.  For 2020, the staff are no longer "otherwise excludable" even though they're still out of the DB plan.  So they may need substantial DC allocations to pass 401(a)(4) against the accruals for the owner in the DB plan.

I'm not missing anything, am I? 

Thanks!

-Bri

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I am sure someone else will chime in, but are you permitted to change eligibility for current employees?  In other words, the requirement was 21/1 when you hired them.  Are you permitted to change that to 21/2 after they have been hired?  That feels wrong, but that doesn't mean it is.  

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Yeah, the plan sponsor can change the eligibility and delay the participation.  They're not plan participants yet, so it's not like this would be a cutback.

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