401(k)

[Guest cconnell]

Hello,

I have a client with an existing 401(k) plan. In considering 401(k) plan options, can the the current entity have one plan for existing employees, and a second plan for everyone hired after a certain date? The second plan's offerings would be different than the first.

Thank You

[Guest GoldenBear03]

No...only one plan with all options available to all participants.

[JanetM]

Not so fast. You can, but it is not easy. As long as you can pass coverage, BRF test, and non dicrimination testing you could split the group.

With all the hurdles it doesn't make a whole lot of sense to do this. What is the purpose of doing this? What benefit does the one group get that the other does not?

[Nate X]

I would think that you could not do this because it appears that employees would be excluded based on service. The only way to exclude employees who would otherwise meet the age and service requirements of a plan (i.e. age 21 & 1 year of service) is by establishing conditions unrelated to age or service.

One could probably argue that this division is not service related, but I would suggest obtaining an LOD first.

Since the plans would offer different benefits, you would always have the potential problem of failing the BRFs test.

[austin3515]

This wouldn't be excluding participants based on service. One plan would simply be closed to new entrants. It's no different than grandfathering employees into a DB plan, and rolling out a 401(k) for the new employees, which I dare say happens often.

You might be able to accomplish what you want in one plan, too. I think Janet M is asking the key question.

[Guest Magic]

Hello,

I have a client with an existing 401(k) plan. In considering 401(k) plan options, can the the current entity have one plan for existing employees, and a second plan for everyone hired after a certain date? The second plan's offerings would be different than the first.

Thank You

To further clarify. The plan sponsor has a current 401k and a defined benefit plan. They are terminating the defined benefit plan. They want to "make up" some of the benefits to the current employee group, providing for a rich profit sharing contribution under the 401k. However, they do not want to do this for new hires going forward. So, the current plan would have, say, a 3% safe harbor, a .50/1.00 up to 6% match and an addtional profit sharing contribution based on points for age and service. The new 401(k) plan would have the safe harbor and the match, however, there would not be an additional profit sharing contribution. I am concerned about benefits testing, as the plans would need to be combined for non-discrimination testing. Your thoughts?

[Guest HiKidsImASrPensionAdmin]

What about a cross tested profit sharing allocation and define your groups based on years of service? Although you would still have to give the new employees a small profit sharing to satisfy min gateway.