Entry Date Exception

[K-t-F]

Existing profit sharing plan amended in September to a 401k. Eligibles in 2004 were able to defer in 2004. Employer wants to impose an exception to the eligibility requirement (for deferrals) and allow EVERYONE who was employed on 1/1/2005 to be deemed as already meeting the one year service requirement and be able to defer . Nothing wrong with that when amending an existing plan to allow deferrals is there? Standard eligibility requirement will be in effect for employer contributions and new employees hired after 1/1/05 will need to meet the standard eligibility to be able to defer.

[stephen]

No problem with the amendment.

Coverage could be a problem at the end of the year depending on the contribution provisions of the plan. ADP/ACP could also be an issue depending on the plan provisions.

[K-t-F]

3% safe harbor nec. adp should be fine. At this point there is no one not eligible to participate. It was a gesture to allow one EE to participate. Small dental practice, doc is making beaucoup $

[austin3515]

There shouldn't be any issues with ADP or coverage because you can still test based on otherwise excludibles I.e., disaggregate those who have not met the minimum age and service requirements of 410(a), ie. 1 YOS and 21 years old). The only time there's ever an issue with that is if a 5% owner gets hired (i.e, that's the only way you get an HCE as otherwise excludible).

[K-t-F]

oh.... funny you should mention that.... one of the EEs is the wife who quit her job to come and work for her husband. She had income in 2004... albeit very little. Idea was to amend PS to include deferrals subsequently reducing ER cont exposure and allow wife to defer since she will not be eligible for ER contribution. SH was the way to go.

Total existing EEs passing 410(a) elig were 3, 2 EEs hired in 2004 (which will be able to defer in 2005 because of exception), plus 1 Dr..... total EEs all together 6 (3+2+1)