Signing Bonus

[DTH]

My company was bought though a stock acquisition on 4/15/05. As an incentive to stay, the new company is giving my company's employees a signing bonus, some of which are as much as $65,000. In order to receive the signing bonus employees must be employed on 4/15/05 though 4/15/07.

The purchaser has a 401(k) plan (Plan A) and so do we (Plan B). The plans will eventually merge sometime in 2007. We would like to put the signing bonus into one of the 401(k) plans and have a 2-year cliff vesting schedule so that employees cannot have access to the money until 4/15/07.

I know that we cannot put the money in our plan because we must count service with our company towards vesting. Could the money be put into Plan A and not count the service with our company? Can you have a cliff vesting schedule that runs from 4/15/05 - 4/15/07?

I know not all employee incentive bonus dollars can be contributed in one year because of the 415 limits. The formula we are proposing to use is the 415 limit minus the elective deferral limit (our plan is an EE Payall). If there is any money left it would be put into the Plan A in the next limitation year. I think this formula passes the 401(a)(4) test. I know the Plan A will also need to pass coverage. (I assume that this also would not allow us to use the coverage transition period.)

Does anyone have any other ideas as to how we can put the dollars into one of the 401(k) plans? We do not want to maintain a nonqualified plan.

Thanks!

[austin3515]

I just can't see how your gonna pass nondiscrimination testing... What a bear! Presumably the higher paid people will get the highest dollar AND the highest percentage of pay, so unless the more valuable people are much older, and unless the gateway requirements can be satisfied (i.e., you need to cross-test), your idea won't work in a qualified plan.

You COULD do this in a non-qualified plan, but then you have exited my area of study...