Can an HCE opt out of a DB and participate in a DC?

[Guest flogger]

Is is possible for an HCE to opt out of a DB plan (without making it a CODA) and still participant in a DC plan? If not, what is the citing/authority. Thanks in advance.

[JAY21]

Some plan docs allow for waiver of participation agreements but I'd think the CODA issue might still be a possible issue under that approach (at least on some level). I personally think it would work better to define the eligible group of employees in the plan document so that the HCE who doesn't want in the plan (DB) is written out of the plan by some job classification or category. That wouldn't preclude him/her from being in a DC plan where the eligibility there could be more generous and still cover him/her.

[Guest FLMaster]

My research many years ago said yes-you may opt out but the election was irrevocable. This depends on the plan document etc.

[Guest mjb]

Under IRS Ruling 80-351 an employee can elect not to participate in a plan. However, the employe still must be counted for 410b purposes. If the employee is excluded from the plan then there is no counting for 410b.

[Tom Poje]

confused on the following statement

"If the employee is excluded from the plan then there is no counting for 410b"

if the ee is excluded because of failure due to statutory permissible exclusion (age 21/1 yr service) but once they meet those requirements (and the next entry date) they have to be included- either as benefitting or not benefitting. ok, in some case you can exclude terminees with less than 500 hours, but only if they are actual participants and do not accrue in the year of termination.

[Lame Duck]

An HCE electing not to participate in the plan should not cause a 410(b) issue since that relates to the percentage of NHCEs covered by the plan. It would generally help the testing. However, if the plan is to be non-discriminatory, I believe it would also have to permit NHCEs to opt out of the plan if it allows HCEs to do so. This could, potentially, result in a sufficient number of NHCEs opting out of the plan to fail 410(b). It may also raise a 401(a)(26) problem if enough opt out of the plan.

Excluding the HCE from participation by classification is probably the better method of accomplishing your goals.

[Guest flogger]

Thanks all for your thoughts.