Std plan -- immediate eligiblity for full timers, but not interns?

[R. Butler]

I've got a small firm (2 owners, 1 full time employee, a couple of interns) setting up S/H 401(k) prior to 10/1. Due to time constraints this year they will just do a Std. Prototype. The full time employee was hired in May 2001. Various interns were employed throughout the year. For this year we want the full time employee eligible, but not the interns (future years we will just do 21 & 1 to avoid the intern problem). On July 1, 2001 there were no interns. Could I make the plan effective July 1, 2001 (this would make a short plan year 7/1 - 12/31), define compensation over the full calendar year and then make the entry dates 7/1 and 1/1? This gets me the full time eligible an no interns. Any thoughts?

[R. Butler]

I think I have a better idea than the initial post. Instead of making the plan effective 7/1, make it effective 10/1, but put a 3 month wait on eligibiity with quarterly entry dates. Since no interns were there on 7/1, no way any can enter this year.

I would still define comp for the full calendar year to get bigger contribs for the owners.

Better?

[Tom Poje]

I think that will actually work for the first year.

for example, lets pretend you weren't even trying to exclude interns.

you set up a plan, no eligibility, entry dates on 1/1 and 7/1.

certainly you can do that.

that gets you by for 2001.

but I think 2002 (and future years) may present problems. once you switch to 1 year wait you are still required to test using the least eligibility requirements

usually statutory exclusions solves the problem, but I am not sure in your case.

(You didn't mention if the owners were in the plan - i would assume yes. so you have a plan in which you have immediate eligibility the first year, bringing in the hces [and by chance 1 nhce] and then putting on a restriction to prevent bringing in anybody else.

[R. Butler]

Tom,

Thanks for the reply. I am having trouble with the last part of the response. (Its been hectic and my brains just not working good, not that it ever really works that well.) I am having difficulties seeing a scenario where statutory exclusions wouldn't solve the nondiscrimination problem.

If we amend to 21 & 1 beginning 2002 than the "otherwise excludable" passes because nobody benefits in that class (the employees benefitting this year won't be "otherwise excludable" next year by virtue of hire dates and birth dates).

The nonexcludables all benefit by virtue of the terms of a standard plan.

Am I missing something?

[Tom Poje]

The Butler did it.

my brain doesn't always work either. I supect probably less than yours. that is why I said you may have problems in the following year. given a standardized plan it should work. (of course, standardized plans go against everything I would do, but in a small company it should work)