Changing entry requirements

[jkharvey]

Three guys start a new company in June. They don't hire any employees until July. They want to set up the plan to have effective date 6/1 w/ immediate entry if employed by 6/1. They will then amend the plan to require 1 year of service for entry. The amendment will be effective after 6/1 but before 7/1. What would prevent this from being ok? It just doesn't "feel" right.

[Bird]

I don't think there's a perfectly clear answer, but I have an opinion.

One argument, which I find persuasive, is that there's something in the 401(a)(4) regs that says an amendment or pattern of amendments can't discriminate in favor of HCEs, and I think it goes on to say that a plan adoption is the same as an amendment or something to that effect. It's hard to argue that this does not discriminate in favor of HCEs.

The other argument is that because you can do what you want in a standardized prototype (many have this as an option - "eligibility is ____ [e.g. 1 year of service] except anyone employed on ________ is in immediately") that it has to be OK. I haven't been convinced of this yet.

[jkharvey]

Thank you! The pattern thing in 401(a)(4) regs was EXACTLY what I was looking for. I knew something was ringing a bell in my head about this.