eligibility - protected benefit?

[Santo Gold]

If a prototype plan uses a 6 month of service requirement to enter the plan, can they later amend that to 1 year of service and actually start counting hours (eg 1000) to enter the plan?

Similarly, can the plan be amended to do away with elapsed time for measuring service for elilgiblity and vesting, and go to a 1000 hours counting method?

Thanks

[WDIK]

On a prospective basis.

[Bird]

Yes, and you can apply it to an emloyee who has satisfied the old requirements as long as they have not actually entered the plan...at least according to one court case...it'll come to me any minute...check out...still thinking...OK, I think it's a case with "North Shore Auto" in there somewhere.

I seem to remember that they not only changed eligiblility from one to two years, but then changed the entry date as well. There were probably discrimination issues but they weren't part of the suit.

[Blinky the 3-eyed Fish]

I don't agree with the last 2 posts. What's to stop the new eligibility requirements from being applied to EVERYONE? Those that had met the old requirements, but wouldn't meet the new more stringent requirements would retain their account balances, but would cease to become active participants in the plan until they met the new requirements. It is not a protected right that I know of.

[Guest curmudgeon]

I thought Blinky crazy, but the three eyed fish is right. Continued participation is not a protected benefit. If you have TRI books, check it out on page 2.64. It's hard getting old....

[david rigby]

I thought Blinky crazy, but the three eyed fish is right.

Just because he's right does not also mean he's not crazy.

[WDIK]

I am not disagreeing with the prior posts.

Perhaps it would have been more appropriate for me to say that the amendment should apply on a prospective basis as coordinated with the plans accrual requirements. There are certainly scenarios where an individual who had already qualified for participation and an accrual during the plan year could have a new entry date based on the amendment that would exclude the employee as an "active participant."

As a completely separate issue, I would certainly not want to be the one communicating employees that although they were once considered active participants they no longer are.

[Bird]

I think we all agree. I'm not sure if I read too much or too little into what was asked.

[Earl]

How about going the other direction; shortening the eligibility period.

My question is about vesting.

There is a 2 year wait and it changes to 1 year and a vesting schedule is added.

If someone was hired 04/01/02 they would enter the plan on 07/01/04 under the 2 year wait.

If the eligiblity is changed to 1 year as of 01/01/04, they enter the plan on 01/01/04 instead.

Is that person 100% vested because they were kept out of 2003 because of the 2 year eligibility? Or are they on the vesting schedule because that was the schedule when they became a participant?

Thanks

[Bird]

I think they have to be 100% vested because they effectively had a greater than 1 year (plus 6 months) period before they entered.

[WDIK]

Code Section 411(a)(10) deals with changes to the vesting schedule.

[david rigby]

IRC 411 (10) Changes in vesting schedule

(A) General rule

A plan amendment changing any vesting schedule under the plan shall be treated as not satisfying the requirements of paragraph (2) if the nonforfeitable percentage of the accrued benefit derived from employer contributions (determined as of the later of the date such amendment is adopted, or the date such amendment becomes effective) of any employee who is a participant in the plan is less than such nonforfeitable percentage computed under the plan without regard to such amendment.

(B) Election of former schedule

A plan amendment changing any vesting schedule under the plan shall be treated as not satisfying the requirements of paragraph (2) unless each participant having not less than 3 years of service is permitted to elect, within a reasonable period after the adoption of such amendment, to have his nonforfeitable percentage computed under the plan without regard to such amendment.

[Blinky the 3-eyed Fish]

That cite is fine and dandy, but you still have to go back to Bird's comment. They had to wait more than the 18 months to get into the plan. For that sacrifice of not getting a 2003 allocation, they must be 100% vested on all contributions no matter what vesting schedule or eligibility is changed to be.

[WDIK]

Blinky's post is right on target as usual. (And Bird's)

Sometimes its difficult to see the forest for the trees.

[chris]

Pardon me for jumping in, but I had a similar question regarding amending the eligibility requirements for a volume submitter safe harbor 401(k) from age 21 and 1 year to age 21 and 6 months... Would it be possible to do that for a calendar year plan year safe harbor 401(k) such that additional persons would be deemed to enter the plan retroactively as of July 1 (has dual entry dates)? The objective of the employer is to see that additional participants receive the 3% nonelective safe harbor contribution for 2004 instead of having them wait to enter as of January 1, 2005. Clearly, participants would not be able to defer comp. they already earned, but the point would be to see that they were deemed to have entered as of July 1, 2004 so that they could receive the 3% nonelectrive safe harbor contribution. Pardon the redundancy..... I suppose the plan would have to issue a "corrective" safe harbor notice for 2004 re the change in eligibility....??? Thanks for any suggestions, comments, etc., including fruit cocktail (WDIK).......

[WDIK]

including fruit cocktail

Does it bother anyone else that the cans of fruit cocktail you purchase usually have only one-half of a maraschino cherry?

(Just for the record, the fruit cocktail comment was meant as a commentary of the somewhat disjointed nature of that entire thread and was not directed at anyone in particiular.)

With regard to chris's post, it is my opinion that such an amendment would not be allowed because of the notice issue that he brought up.

[TPApril]

somewhat related to this post of 15+ years ago....

401(k) safe harbor match (small) plan has 1 yr eligibility/dual entry dates.

New HR administrator hired and enters new participants 6-months early, on 1/1 instead of waiting for 7/1, contributing 401k and match along the way.

Contemplating fixes such as:

Amend eligibility to 6-month/dual entry for the year.

Amend plan after 7/1 but before next 1/1 to go back to 1-year eligibility

but then, it's a safe harbor plan...

 

[Mike Preston]

I miss Blinky!

[TPApril]

At the risk of distracting from my inquiry, may I inquire what happened to Blinky?

[Mike Preston]

12 minutes ago, TPApril said:

At the risk of distracting from my inquiry, may I inquire what happened to Blinky?

I think he was eaten by a four eyed cat.

[Mike Preston]

2 hours ago, TPApril said:

somewhat related to this post of 15+ years ago....

401(k) safe harbor match (small) plan has 1 yr eligibility/dual entry dates.

New HR administrator hired and enters new participants 6-months early, on 1/1 instead of waiting for 7/1, contributing 401k and match along the way.

Contemplating fixes such as:

Amend eligibility to 6-month/dual entry for the year.

Amend plan after 7/1 but before next 1/1 to go back to 1-year eligibility

but then, it's a safe harbor plan...

 

You can do both at the same time.  I don't think it matters that the plan is safe harbor.

[TPApril]

So seems to be acceptable to shorten eligibility and then go back to original one before anyone new reaches 6 months?

[Mike Preston]

As long as the beneficiaries of the shortened eligibility are a 410(b) group (like all NHCE's)  it should be fine.