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Hello all. Any experience or insight as to excluding a classification of employees from a traditional 401(k) plan would be helpful: ISSUE: Employer (traditional 401(k) Plan Sponsor) wishes to exclude a division of employees working on a new contract in order reduce costs and win contract. This would include mostly new employees hired to perform under this contract as well as a handful of current employees who already participate in the plan. The [Note: not a full time vs. part time classification issue and this is also not a new line of business for the Employer.] [Option 1]: I believe the Employer can exclude the NEW HIRES from participating in the plan (so long as Plan meets minimum coverage requirements). However, could the Employer exclude the CURRENT employees (already in the plan) from accruing additional hours of service for their work in this division, or would this constitute a cutback in benefits? [Option 2]: Alternatively, could the Employer exclude all employees in this division (new hires and existing employees) by requiring 3 years of service in order to be eligible (currently plan doc requires 1 month)? [Option 3]: Alternatively, could the Employer include both new and existing employees in this division in the Plan but with less of a match? (Concern is that decreasing the match for existing employees in the plan could be a cutback in benefits) Your thoughts are most appreciated. Thank you!

A profit sharing plan currently requires 2 years of service for eligibility for an employee to become a participant. Thus, the plan has 100% immediate vesting. The plan only covers non-highly compensated employees. The plan sponsor wants to lower the eligibility to 1 year of service and introduce a 6-year graded vesting schedule. All existing Participants will remain 100% vested. How will this be handled for existing employees? Some employees have been held out already over 1 year (some almost 2 years). However, they have not yet entered the plan and thus have no rights as a participant. Must they be 100% vested when the plan is amended to lower the eligibility, or can they be placed onto the 6-year schedule? How about those with under a year, would they be treated any differently?