Excluded class definition

[SMB]

Construction company currently sponsors a 401(k) Plan for the benefit of its non-union employees, as well as contributes to a bevy of various "union" plans for the benefit of its union employees.

A couple of former union employees reached their NRA under the union plan and are now receiving pension benefit payments from same. These same employees are continuing to work for the company - but now as non-union employees (i.e., the employer is no longer making contributions for these individuals to the union plan).

There are other former union employees who are also now "company" employees and are covered under the "company's" plan - but have not as yet reached NRA under the union plan and are not receiving pension benefits from the union plan.

The company would like to consider (unless it's more hassle than it's worth) excluding the "former union-now company" employees who are receiving benefits from the union plan from the company plan.

Definition of the "excluded class" would be something like: "Any employee who is currently receiving retirement benefits from Union Local 000 Pension Plan".

Their exclusion will not create a "minimum coverage" issue.

Just trying to see if this definitional approach for excluding these individuals sounds o.k. to those of you with more experience than I with such matters.

All comments, concerns, etc. most welcome.

Thanks!

[Mike Preston]

From a qualified plan perspective, it seems reasonable. Whether it is reasonable from a employer/employee relations perspective is another matter.

[rcline46]

I would be concered that it would look like a subterfuge for a maximum age condition, which is not permitted.

[Mike Preston]

Good point. However, if the employer has other employees who have never been union members, of the same age or higher, in the plan, that concern would be lessened, yes?

[rcline46]

By letting them in the plan, you can specifically avoid a duplication of benefits, but it does not appear such will be the case here (ie can exclude service with the union if the benefit is service related). THen how about the person who worked long enough to get a deferred union pension 20 years ago, and has been out of the union for 20 years, turns 65 and starts getting the union benefit. What about the employee who chose to defer receiving the union benefit so they could get current benefits from the employer.

I think there is enough risk here to specifically get a determination letter from the IRS with disclosure of the special exclusion.