What Entry Dates - Early Participation vs. Disaggregation

[smm]

401(k) plan with immediate eligibility flunked the ADP test. We are going to retest using the early participation rule and the otherwise exclucable rule to see if either helps. My question is do we use the plan's entry dates to determine who is in the lower (less than one year of service) group for the or can we use the maximum enntry dates under Code Section 410(a)(4). Is the answer the same for both tests?

Thanks!!

[ak2ary]

Good question, it depends on who you ask. For years, IRS representatives were pretty clear that you could use 21/1 with 2 entry dates regardless of your plans entry date provisions. Over the last two years that has become less clear. In the midatlantic region, the IRS audited alot of plans that did this and said, no you must use the plans entry dates unless the document says for determining otherwise excludable/early participation you use 2 entry dates. This dumbfounded the retirement industry, but alas, IRS made these plans adopt an amendment doing this (although they allowed the amendment to be retroactive..no harm no foul)

Since then, one national office atty has sttaed strongly that this is the only way to do it, while no one else seems willing to answer the question into a microphone.It creates real problems for prototypes since no such language is in any LRMs etc

I believe that outside the MidAtlantic region (and also inside that region) most people use two entry dates for both

(I should note that my response is based on comments relating to the otherwise excludable options and combined with statements from IRS that both rules work the same) I have never heard the IRS raise the issue relating to the early partic rule directly however)

Hows that for no answer

[smm]

Based on some Q&As that I located online, it looked to me like the IRS said that you can use dual entry dates for disaggregated plans, but not for early participation. I also saw a response at an ASPPA Q/A session from 2004 or so that said that the issue was going to be addressed in the final 401(k) regulations, but it doesn't seem to me that it was. I like the idea of using dual entry dates b/c it makes it cleaner to carve out the group.

[TPAnnie]

SMM, can you indicate where online you found this? We are researching this exact issue and cannot find anything that tells us that the different tests use the different dates of entry.

thanks!

[BG5150]

For what it's worth, Relius uses two entry dates when testing the otherwise excludables.

[Kevin C]

This was discussed at the 2006 ASPPA annual conference in the IRS Q&A session. I think the IRS attorney ak2ary referred to was speaking. It was a rather lively exchange.