Eligibility Amendment

[Guest AJM 34]

A 401(k) Plan’s eligibility is 21 and 1 year of service (1,000 hours) with quarterly entry dates (1/1, 4/1, 7/1, 10/1).

In 2006, a participant who did not reach the Plan’s eligibility requirement made $15,000 of employee deferrals into the Plan due to an administrative error in 2006.

Date of hire was 11/15/2005. Entry date should have been 1/1/07.

Do I have the option now to retroactively amend the Plan’s eligibility requirement to six (6) months of service with monthly entry dates and allow this participant to keep his $15,000 employee deferral in the Plan for 2006? Is so, what would be the date of the amendment?

[Kimberly S]

Look at Rev Proc 2006-27, appendix B, Section 2.07(3)

[Sully]

Look at Rev Proc 2006-27, appendix B, Section 2.07(3)

Example 25 under the above mentioned section says to correct the failure under SCP by amending the plan.....and submitting the amendment to the Service for a determination letter.

Instead of doing the amendment and submitting for a determination letter you may want to look at refunding the employee's contributions and making him whole outside of the plan.

[mwyatt]

Also, consider that an amendment away from a Year of Service to 6 months of service effectively brings in all part-timers, if that is a concern.

[Jim Chad]

To add a little to what MWyatt said: Some documents allow 500 hours and 6 months. If your document allows this, you would be bringing in all short timers. But not necessarily all part timers.

And this would only apply until you amend back to your current eligiblity provisions.

[rcline46]

Assuming this is NOT an HCE, amend plan to allow 'Mr. x' to join the plan immediately, and no one else.

[BG5150]

Assuming this is NOT an HCE, amend plan to allow 'Mr. x' to join the plan immediately, and no one else.

"Immediately" would imply as of right now and doesn't address the past deferrals.

[Guest AJM 34]

This is not a HCE. Can I only allow the HNCE in who contributed prematurely to the Plan and no one else?

This sounds discriminatory?

Assuming this is NOT an HCE, amend plan to allow 'Mr. x' to join the plan immediately, and no one else.

[Blinky the 3-eyed Fish]

By rule you can NEVER discriminate by providing more to an NHCE.

[Guest AJM 34]

Therefore, I can retroactively change the eligibly requirements from 1 year to 6 months to bring in this NHCE who contributed prematurely and made a $15,000 deferral in 2007, and not the other HNCE’s who would be eligible under the 6 months rule but who did not make a contribution in 2007?

By rule you can NEVER discriminate by providing more to an NHCE.

[Blinky the 3-eyed Fish]

The second and third posts to this thread by Kim and Sully tell you what you need to know.

[Guest AJM 34]

Blinky:

I was asking for clariffication of Rev Proc 2006-27, appendix B, Section 2.07(3) because it is not clear about including participants that who would be included under the revised eligibity but did not make any deferrals.

The second and third posts to this thread by Kim and Sully tell you what you need to know.