Special Provisions for New Hire

[Guest pension222]

I am familiar with the concept of the qualified sign-on bonus whereby a newly hired employee who will be an HCE next year (he or she is not currently a 5% owner) is allocated a large contribution in a profit sharing plan during the first year of service. This is done via an amendment that specifies the contribution for this person and since he or she is not yet a 5% owner, there is no discrimination in favor of an HCE.

If the profit sharing plan requires a year of service before entry, can this also be waived for our new-hire? I suspect this may be allowed.

And finally, can a qualified plan provide immediate vesting specifically for an individual who, will be an HCE? This I suspect will be prohibited not in the year the person is hired, but in the following years when he or she is an HCE.

[maverick]

I've never heard of giving one person a large p.s. contrib, so I'll let the veterans respond to that.

If you waive the year of service for one ee, you have to waive it for everyone.

Vesting must follow the plan document, you cannot selectively pick and choose people for 100% immediate vesting.

Personally, I think some kind of compensation/ bonus arrangement would be a better way to take care of this soon-to-be HCE, rather than tinkering with plan specs.

Maverick

[Guest pension222]

I agree that these responses make sense but can anyone tell me why? I'd really like reference to the Code, a reg, letter, etc.

Why can't we liberalize the entrance requirements for one NHCE. It would certainly be nondiscriminatory under 401(a)(4).

I suspect the problem with accelerating vesting for a NHCE would be that the next year when the person becomes a HCE, that we would then have a benefits, rights, and features problem since this would then discriminate in favor of a HCE.