Eligiblity

[Guest Kimberly Hlavacek]

My question is regarding eligibility. We have a plan that has it service requirement as 6 months and an employee can enter semi -annually. The employer wants to amend their plan effective 1/1/2002 so that the service requirements are one year and quarterly entry. My question is regarding an employee that is hired 9/1/01. They will not have met their eligibility requirements by the end of the year to participate in the plan. Since the amendment takes effect in 1/1/02, when would that person be eligible to participate in the plan? Do you follow the old service requirements or does that employee fall under the new amendment and has to wait one year?

Any thoughts would be greatly appreciated.

[david rigby]

A plan amendment cannot change the eligility to participate for those already in the plan. But it can change the requirements for non-participants. (That is, the "anti-cutback" provisions affect participants, not employees.)

However, there might be other reasons for the plan sponsor to make the change prospectively based on hire date. This is generally a human relations issue, rather than a plan issue.

[Guest JEP]

The participant would have to enter under the new eligibility conditions. Eligibility is not a protected benefit, so unless the employee is already in the plan as a participant, he must enter the plan under the new conditions.

[Bob R]

I respectfully disagree. Just because someone has become a participant doesn't mean you can't change the eligibility conditions and exclude them from the plan. Of course any interest they have in the plan continues to vest and the amendment to change eligibility does not cause a distributable event.

Many plans state that once someone has become a participant, they will remain a participant even if the eligibility conditions are amended. But, that's a plan design issue -- there is nothing in the IRC that states once a participant always a participant.

The same could occur due to the addition of an excluded class of employees.

As far as you question, what do you want the answer to be? The amendment should be specific so that the desired result can be acheived In most cases the actual amendment will provide that for employees hired after X date, the new condition are Y. That makes it clear. But, you could state that effective as of X the new conditions are Y. In my opinion that would impose the new conditions on all employees -- even those who had already become participants unless there is something in the plan stating that once you are a participant you remain a participant.