New plan, service and age waived, what about 410(b)

[John Feldt ERPA CPC QPA]

We've come across a plan that has age 21 and 1 YOS with semi-annual entry dates, but it waived the age and service requirements in the first year by using language that says those employed on or before 3-1-2008 were exempt from the age and service requirements. The company started its business in February 2008.

The only two people that were employed by March 1st were the owner-HCEs. A few staff employees were hired July 2008 (after July 1).

Doesn't 410(b)(2)(D) require that the lowest age and service requirement be considered for determining coverage, and doesn't such a waiver constitute no age and service for 2008? Or is the waiver of requirements just considered as part of the plan's conditions of participation which would fit in 410(b)(4)(A)? - I would not think so. Or does the semi-annual entry date solve this issue somehow?

[Mike Preston]

I think the semi-annual entry date solves this issue for this plan. I think the right way to look at coverage is based on zero service, irrelevant age and entry on 1/1 or 7/1 following hire. Seems like only the two HCE's enter the plan.

[Bird]

You pass the coverage test, but then you have to worry about whether a pattern of amendments has resulted in discrimination, and I think the a4 regs describe the plan's adoption as an "amendment" that would fall under this. I think that's exactly what they had in mind, although it's done all the time, and rarely if ever challenged.