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It looks like everyone is reading the OP as saying the plan included the SH match at 1/1/20 and the only thing to be amended is the eligibility requirements. If that's not the case, it's a different answer. I can only think of two situations where it makes any sense to retroactively make someone eligible to defer. One is if you are doing a corrective amendment because someone was improperly allowed to defer too early. The other is to correct a failing 410(b) test. I agree with the suggestion to make them eligible when the amendment is done, not retroactively. If they want compensation for the entire year to be used to calculate the match, amend the plan to use compensation for the plan year including amounts prior to participation. As for missed deferral opportunity, if the plan document says someone is eligible to defer 1/1/20 and they were not offered the opportunity to defer starting 1/1/20, there is a missed deferral opportunity.

See Q&A 20 here: https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers

Here's a text of the draft bill. But there is still haggling over some provisions. Coronavirus-Stimulus-Bill.pdf

Yes, attorney needed. I've done non-amender VCPs where there is already a plan document and they have been operating the plan in accordance with such. But where there is no actual complete document over the course of decades, who knows what the plan provisions were? Also an employer that doesn't have any complete document is likely one where attention to plan operations was, shall we say, casual? And a plan that has been around that long implies more money in it, and more participants over the years, so greater downside risk. Not only is this not making the client's liability your liability, getting an attorney involved is also protecting the client. Issues can be discussed under attorney client privilege, helping to protect the client should IRS or DOL get involved or participant litigation. And, though it seems far-fetched, there are possible criminal issues that could arise, who knows what has gone on? As a TPA, anything we learn is discoverable, potentially putting the client at risk.

Thank you everyone for the input. It is comforting to know others have the same opinion even if the IRS guidance is lacking (surprise!) I think all of the points being made are spot-on and I'm stealing all of it for my response to the mutual fund company ? I hope everyone weathers this storm and stays healthy!

I second the notion of getting an ERISA attorney involved. Who knows what else was missed.... Who was administering this plan throughout the years? Who was doing the 5500's?

Bird, I think the bolded section applies when the employer is increasing the match formula, for example changing from a basic SH match to an enhanced match. What Purplemandinga is talking about is making additional employees eligible retroactively. I am curious what the employer is trying to achieve with this. Why not just make the participants eligible on the effective date instead of messing around with retroactive entry?

Hi, all -- There is no clear guidance from the IRS or Treasury about how to determine HCEs in the year of a stock acquisition or a business merger. If you look at the Code and regulations, the clear intent of the rules was that there would be one applicable determination of who is an HCE and then that would apply across all plans. But, in a stock acquisition, particularly where the acquired company and the buyer each sponsors its own plan and the plans will operate separately during the transition period, it is not clear at all how to determine HCEs. So, I think it makes the most sense, and is defensible as a reasonable interpretation of the law, that you maintain the pre-existing HCEs from before the acquisition vis-a-vis each plan for the year of the acquisition. A couple of additional notes: first, the transition rules take you out of coverage testing, which relieves you of needing to define HCEs for that purpose. But, the transition rule does not relieve you of nondiscrimination testing. If your two 401(k) plans are just that, then you can go ahead and test them separately and the use of the prior HCEs in the year of transition probably makes the nondiscrimination testing harder to pass than if you had some kind of cross-company definition of HCE (i.e., there is some possibilty that people who were HCEs in the acquired company would become NHCEs due to the top 20% rule or something similar). HOWEVER, remember that, if any of the plans use cross-testing and you use the average benefit percentage test as part of the cross-testing, then you need to take into account benefits of all plans of the company ... which means that the definition of HCE becomes problematic from that standpoint. So, you may need to look at this a little differently in that circumstance. Last but not least, look for situations in which any of the assumptions about what the rules might be if the IRS/Treasury actually wrote them creates a skewed result which is abusive in nature. So, let's say that you make a reasonable assumption about who the HCEs are, and it turns out that, with that reasonable assumption, the amount that the HCEs get or can contribute quadruples from prior years. Just be careful that you are not creating a situation where the IRS would be tempted to exercise its rights under the coverage and nondiscrimination rules to consider something abusive and plan-disqualifying. Hope this helps. Everyone stay healthy! Ilene

Fully agree with you both and here's an example of why our interpretations make sense compared to the alternative view. What if the 401(k) plans are both safe harbor and what if one or both exclude HCEs from the safe harbor? Not even considering the transition rules concerning amendment, if you amend a safe harbor plan mid-year to change who is and is not an HCE and thereby also change, mid-year, who gets and does not get the safe harbor, I think you have a big problem. I believe the transition rules were designed so that for a brief time after a merger (1+ PY) that plans of merged entities could continue to fully operate on an "as is" basis (so no "change" amendments) and have time to iron out the logistical details regarding future compliance of the respective plans. These rules are there to help ease the problems of dealing with plan differences, not exacerbate them! Otherwise, WTF bother with the transition rules at all? IHMO

My interpretation of the transition rule is that you leave each plan alone in order to utilize the transition period. If you amend the plan to change the definition of HCE, I do think it eliminates the protection. Perhaps I'm too conservative on this as well, but I think the mutual fund company is wrong.

Employee entered the plan and was eligible to defer beginning on their date of re-hire, 8/1/2019.

Lot at stake for over 20. Seems like this should be handled under the guidance of an ERISA attorney, and with attorney-client privilege to protect the plan sponsor as much as possible. Really hard to get more specific here as much depends on the facts.