Exclude HCE?

[Dougsbpc]

We administer a small DB plan with 10 participants. The emloyer has 13 employees. The employer just hired a very highly compensated employee and wanted to exclude him from the plan. The employee is age 49. There will be no problem passing 401(a)(4) or 410(b).

I believe ADEA only applies to employers with more than 20 employees.

Anyone see a problem with this?

[Blinky the 3-eyed Fish]

I don't see this as an ADEA issue regardless of whether it applies or not. You aren't going to exclude all people 49 and above are you? Instead you will exclude him by name or job classification, right?

[Dougsbpc]

Yes, we will be excluding by class in this case.

Suppose we fast forward three years, they have 30 employees and the plan excludes all salespersons. Furthermore, suppose they happen to have 5 otherwise eligible sales employees who are all over age 40. Perhaps we still would not have a problem because we would be excluding by class. If we excluded by name, we may have a problem.

[mbozek]

There are two forms of age discriminaton: disparate treatment and disparate impact. Disparate treatment is discrimination based upon the employees age, e.g., excluding all employees over age 40 from the plan and is prohibited under the ADEA. Disparate impact is age discrimination which affects protected employees under a facially neutral policy, e.g., plan excludes all salesmen who are the only employees over age 40. The US supreme ct will issue a decision as to whether the ADEA prohibits age discrimination which results from disparate impact.