Eligibility Question

[emmetttrudy]

This employer has a 401(k) Plan and a Defined Benefit Plan. He pays his two children about $5,000 each year and they work minimal hours (definitely less than $1,000). There is one other employee who makes approximately $16,000 per year but never works 1,000 hours.

He is the only participant in the DB and 401(k) Plans. Is this ok? Is there a nondiscrimination problem I should be worrying about because of this other employee? Or as long as she never works 1,000 hours or more is it ok?

[ScottR]

This employer has a 401(k) Plan and a Defined Benefit Plan. He pays his two children about $5,000 each year and they work minimal hours (definitely less than $1,000). There is one other employee who makes approximately $16,000 per year but never works 1,000 hours.

He is the only participant in the DB and 401(k) Plans. Is this ok? Is there a nondiscrimination problem I should be worrying about because of this other employee? Or as long as she never works 1,000 hours or more is it ok?

If the plans have a one year service requirement (or more), you have no problems. A year of service is a 12-month period with 1000 HOS. Employees without any years of service don't satisfy the eligibility requirements, and they may be ignored for coverage and nondiscrimination testing.

.. Scott

[tymesup]

You could have a problem if the employer is deliberately holding the employee's hours under 1,000. For example, the ee is at 999 hours and the er says, take December off.

Presumably, the plan has a 1,000 hour requirement.