Exclusion of a group of eligible employees

[Guest philc]

401(k) plan document is written to permit all employees to participate. In actual operation the employer has been excluding (for 3 years) collectively bargained employees and those employees who they consider to be part-time (no year of service for eligibility).

Since the intent was never to include the CBA ees, there is no evidence the CBA ees bargained for the 401(k), no communication was given to the CBA ees that they were eligible to participate in the plan, they are a statutory exclusion and tested separately for 410 and ADP/ACP anyway - would the employer have to make the corrective contributions under 2002-47 or do you think the employer could amend their plan now to exclude these ees and not have to make the corrective contributions/earnings? Advise VCP or a PLR?

Seems like there isn't any justification for excluding the part-time ees and corrections must be made and amend the plan prospectively to add the YoS.

Trying to give the employer (and counsel) alternatives they could consider rather just state corrective contributions required under 2002-47.

[mbozek]

Most Q plans for non union employees do not cover union employees. Union ee have a separate plan. I once represented a client that had identical but separate plans for union and non union plans but the non union plan did not exclude union ee from participation. Question is whether union ee are covered under another plan, eg. DB plan. Under the IRS regs there is no requirement that union must bargin for plan that does not include unon employee every time CBA is renewed. If union ee are covered under a DB plan for union ee then you can argue that union elected to opt out of 401(k) plan in exchange for DB plan contributions by er.

Part time employees can be excluded if plan permits exclusion for employees who work less than 1000 hours in a year. Plan can be amended to exclude part timers beginning 1/1/03 but must include part timers for prior years.