Collective Bargained 401(k) Plan

[Guest Thornton]

We are taking over as TPA for collective bargained 401(k) and mpp plans, something we're new at. Match and mppp contributions are pretty standard, 100% of deferrals up to $1,000 for the 401(k) match and so much per hour for the mppp.

My question involves eligibility and accrual rights to the contributions. The CBA requires 2, 040 hours for eligibilty and accrual of a contribution. The document that the company has been using is a prototype with the standard 1,000 requirements.

1) Is the 2,040 hour requirement permissible?

2) If yes, is the use of a prototype by the prior TPA appropriate , or should an individually designed plan been used?

3) If the document and the CBA conflict, as they have here, would the CBA override the plan document?

Thanks.

[MGB]

1) If you are talking about "eligibility" as being the initial eligibility to become a participant in the plan, that should be based on 1000 hours. For benefit accrual purposes, there is no upper limit on the hours requirement and 2040 is OK for a full year of credit. However, anything above 1000 hours must receive a pro rata allocation of whatever the full year is (basically, because these are contributions and not a DB, this ends up being the same as a 1000 hour rule).

2) Individually designed. I assume no prototype is set up to do this.

3) This needs a lawyer, there are problems with both the CBA and the plan. For past years, there may be an issue of benefits that should have been accrued and were not.

[KJohnson]

MGB--I agree with initial participation and vesting--You can't have anything more than 1000 Hours.

However, for purposes of receiving the contribution I would assume you are referring to the ERISA accrual computation regs under 2530.204-2. These seem to be truly "DB" oriented. Have you seen anything formally or informally applying these regs to a D.C. Plan. I thought I had read some where that DOL had made statements that these "accrual" rules don't apply to DC plans.

Of course a 2040 hour rule would ordinarily present a 410(B) nightmare. However since a collectively bargained plan gets a 410(B) "pass". This would not be an issue.

[MGB]

I am unaware of any distinction of these rules applying differently to DB versus DC. If there is a reference out there, I'd be interested in seeing it.

[KJohnson]

I think that you get there this way--2530.204-2 are regs under 204(B)(1) and 204(B)(3) of ERISA. Then look at the last part of 2530-200(B)-1(B) which recognizes that 204(B)(1) and 204(B)(3) are just DB rules and do not apply to DC plans.

I guess this makes sense since many DC Plans have a "last day" rule for a contribution even if a participant has 1000 hour or more of service.