eligibility question

[thepensionmaven]

I am designing a small 401(k)profit sharing plan, calendar year 1999, of which for '99 there will be no 401(k) contributions. The employer wants to include all employees for the first yeat then have 21, 12 months for future years.

Problem is, may employees were hired after 1/1/99, some as late as 12/1/99.

I've thought as far as 1/1/99 effective date, double entry dates of 6/30 and 12/31 and the amending as of 1/1/200 for 1/1 and 7/1, but I don't think that will solve the problem of bringing in the people hired in December '99.

We're not talking of a huge contribution, the annualized % is around 7%, but I don't even want to think of a short plan year of 12/1/99 to 12/31/99.

The also want to go 401(k) for 2000.

Any ideas??

[david rigby]

If the eligibility definition stated that any EE as of 12/31/99 would become a participant as of 1/1/2000, would that result in a discriminatory action? Then for later entry dates, use the "regular" eligibility definition.

[Guest]

many plans do have a 1 yr wait / age 21, but also immediate participation if hired by such and such a date.

is there a discrimination issue involved?

well, yes and no.

for 1999 you bring in everybody, including those who only worked 1 month. that means in the year 2000 you have to test anyone who has 1 month as includable and not benefitting. (By 2001 everyone now has 1 year, so the problem should go away - I suppose you always have the possibility of having a part timer or an 18 year old that really botch things up)

anyway, you can always statutory test ees, and because of new law, there will never be an HCE in the group of ees with less than 1 year. thus that group will always pass, even though you may have many who are includable and not benefitting. so yes, there is a discrimination issue, but no it shouldn't be a problem. be careful on your ADP testing in the year 2000 a a result!