Large Plan to Small Plan

[KateSmithPA]

Is there any reason why an employer who currently has a large plan could not seperate his employees into 2 plans, in order to do away with the annual audit? There is no desire to be discriminatory, they just don't want the expense of the audit.

Thank you.

[John Feldt ERPA CPC QPA]

That should work.

Also, consider an employer who is just setting up their first plan (say they have 125 eligibles, 150 total EEs). They can save $5,000 or more in plan costs by having two plans instead of one (it seems un-intuitive at first). They just needed a way to easily identify who is in which plan, then pass coverage and nondiscrimimation. It's also important to pick groups that don't have much change from one plan to the other. The extra start-up cost to have two documents is easily covered by the annual cost savings.

[david rigby]

If a DB plan, don't forget about 401(a)(26).

(Size matters.)

[John Feldt ERPA CPC QPA]

Good point, usually the 50 count is met, but you're right - you must watch for that.

Interestingly, 401(a)(26) still applies to DC plans according to the regs (I think), but not according to the statute (the Code). So we can ignore the regulations in this case.

[david rigby]

Code always trumps the regs. However, there are many cases in which the Code is ambiguous (intentionally so, IMHO), and one purpose of the regs is to add clarification and/or flexibility.