May Qualified Election Period be extended?

[Trekker]

The Qualified Election Period defined in IRC 401(a)(28) is six years. May a plan extend that period, for example, to 10 years? This would only be for Qualified Participants. Is it discriminatory to offer diversification outside the window period only to individuals who have attained "qualified participant" status?

[BeckyMiller]

IRC Section 401(a)(28) sets a minimum standard. Many plans choose to offer diversification rights that are more generous than what the Code requires. Such a privilege needs to satisfy the nondiscrimination standards for "other benefit rights and features" at 1.401(a)(4)-4(b)(2)(ii)(A). It is generally pretty easy to satisfy these standards because of this special language on testing availability by disregarding age and service conditions.

Now - in this world of risk management - this diversification practice has always raised issues of securities law. In general, the SEC has allowed that compliance with the required diversification will not trigger the application of securities law, but they were silent with respect to extended diversification privileges. In my experience, they have remained silent. I have not seen anyone suggest that if you grant diversification privileges in excess of the required standard that you MUST comply with securities laws. But, I have not seen anyone specifically say that you don't have to comply, either. So, prudence dictates that you check with counsel. I am hoping Kurt is reading these posts, as he spends a fair amount of time on these issues and I am just dealing with rumor and hearsay.

[QDROphile]

You should read the provisions of Notice 88-56 that cover amounts that are subject to diversification, but are not required to be diversified under section 401(a)(28). They have implications for record keeping and other administration, depending on how the plan implements diversification.