Why? Apparently as a last resort.
Organization is a 501©(3) that has 110 employees and has fairly high turnover. Without an effective mechanism to exclude employees from eligibility they have been forced to do costly financial audits as part of the 5500 reporting process. If they terminated the 403b at the end of 2013 and start a 401k with a 12 month eligilibility on 1/1/2014 you could have the following scenario.
2013 - 1/1 start with 110 employees,with 40% turnover. Currently all are eligible but only 40 participate. Audit would be required. Terminate plan on 12/31.
2014 - 1/1 adopt 401k and start with 110 employees. Adopt 12 month eligibility provision. All employees on 1/1 would be eligible, but due to attrition and new eligibility requirerments only 65 would be eligible as of 12/31.
2015 - With only 65 eligible on 1/1 no audit would be required.
Thoughts?
