retroactive amendment

[K2retire]

I've just uncovered a situation that is new to me. A client has rehired a previous plan participant and wants to cover her immediately. (In fact, he has permitted her to defer and already matched her deferrals.) Unfortunately, his plan was written with a one year hold out rule for employer contributions.

Is that something that can be self corrected to conform the document to the plan's operations?

[Mike Preston]

Are you sure? For many reasons, the one year rule usually is not applied to those who are rehired. So, check the document and see if it doesn't say that a prior participant, upon rehire, commences participation immediately, including eligibility for employer match.

[K2retire]

The adoption agreement says "The one year hold out rule rescribed in Plan Section 2.03(b) applies to the Plan and all Participants." Since another option under that same section says "Applies to the plan, but only to a Participant who has incurred a Separation from Service" it seems reasonable to assume that all Particicipants would inlcude those with a Separation from Service.

[Mike Preston]

Has the "error" crossed a plan year end?

[K2retire]

Yes. The participant terminated several years ago and was rehired in August, 2007. It is a calendar year plan.

[Peanut Butter Man]

What does the Basic Plan Document state about rehired participants since it is a prototype document?

[K2retire]

The base plan document says "A Particiant who incurs a Separation from Service will re-enter the Plan as a Participant on the date of his/her re-employment with the Employer, subject to the one year hold-out rule, if applicable, under Section 2.03(B)."

[Jim Chad]

I can't see how to do the one year hold out rule in 401(k). How can you retroactively let the Participant defer?

It makes sense to me to apply it only to the 401(a) and 401(m) parts of the plan. I would let the person defer immediately. FWIW

[K2retire]

The plan document specficically excludes deferrals from the one year hold out rule. The participant was allowed to defer immediately. The plan also matched her immediately.

My question is if this is something that can be self corrected by amending the plan to conform to its operation.

[BG5150]

Hasn't the person already suffered the one-year hold out rule the first time he was employed?

[Jim Chad]

Let me try to clarify something....the one year hold out rule has nothing to do with eligibility. It has to do with when you do the paperwork on letting a rehire back into the Plan. Many documents will give you the option to wait a year before allowing a rehire back in the Plan. But then, if the employee stays for a year, you have to go back to the date of rehire with all beneifits. I find this choice to be a pain and I try to avoid it.

K2retire - Are these seperate accounts so the money is in that Participant's account? or is it pooled?

[K2retire]

They are separate accounts.

I totally agree that this is an option to be avoided, unfortuantely I didn't write this document.