New provision for(k)s for 1999

[Guest ROUSE]

In the current issue of TIME magizine (January 11,'99) there is mention of a new provision to 401(k) plans. It says, "taking effect this month, companies no longer have a financial incentive to make new employees wait up to a year before becoming eligible for these [plans]. What is this referring to???? It doesn't sound like the harbor provision or the using of last year's discrimination test for this year's HCE contrib limit. Any ideas???

[QDROphile]

As usual with popular journalism, they got it wrong. They are referring to 401(k)(3)(F), which is not a significant new development. And they forgot to take into account top heavy plans that will have to provide an employer funded 3% for the new participants (slight oversimplification) who otherwise would have started a year later and saved the employer the contribution.

[Greg Judd]

QDROphile's got Time's number on their miscue.

That little blurb will kick off about a month of communication 'opportunities' for benefits pros whose plans DO have a waiting period--which is most plans--and my guess is most will keep their waiting periods.

[MWeddell]

The TIME article refers to a new discrimination testing provision effective for plan years that begin in 1999 that allows one to ignore nonhighly compensated employees who haven't attained age 21 or haven't earned one year of service. For those familiar with the discrimination testing, this is a pretty minor development because prior rules allowed us to get to the same result because this group could be tested separately and generally didn't have any highly compensated employees anyway.

Financial disincentives to allowing newly hired employees to participate still occur if (i) the plan makes employer contributions including matching contributions to participants, or (ii) the employer pays administrative costs (such as per participant recordkeeping charges or distribution fees) for these particiapnts.

[This message has been edited by MWeddell (edited 01-07-99).]