Need a refresher on eligibility requirements

[Dennis Povloski]

Plan had an age 21 and 6 month wait, entry on the first day of the plan year coincident or next following.

Said plan was later amended to have an age 21 and 1 year of service wait, but the entry date was not amended.

This does not satisfy the statutory eligibility requirements, does it?

Is there a different answer if the plan provides for 100% immediate vesting (a la 2 year wait)?

Thanks!

[rcline46]

Bad amendment - must go to at least Dual entry.

[WDIK]

Aren't the original provisions also inappropriate?

[MWeddell]

The original provisions were fine: all participants are eligible at least as soon as permitted by IRC 410(a).

[J Simmons]

I think that MWeddell is correct. IRC section 410(a)(4) provides that the entry must be the sooner of 6 months after or the first day of the plan year first beginning after the employee meets the requirements set forth in section 410(a)(1), age 21 and 1 year of service--not from the date the employee meets the lesser service requirement (6 months) that the plan might impose.

[WDIK]

What if an employee who has already completed a year of service turns 21 a few days after the first day of the plan year?

[J Simmons]

Good point. The plans that I've seen that include a provision like the pre-amended in OP have a caveat for those employees that satisfy the minimum service before minimum age--entry is 6 months to the day after reaching the minimum age. However, the plan in question might not have that saving clause and thus, good point!

[Dennis Povloski]

Here is an excerpt from the document, which turns out to be a little different than what I described in the OP. This by the way is an attorney drafted custom doc:

Time of Participation:

(a) Each Employee who was employed by the Employer on the effective date of thie Plan (January 1, 2000) commenced participation in this Plan on the effective dat, provided that the Employee was credited with not less than 1000 Hours of Service during the 1999 calendar year.

(b) Each Employee who did not commence participation in this Plan under subsection (a) above will commence participation in the Plan on the first Entry Date coincident with or immediately following the later of:

(1) his attainment of age 21, or

(2) his completion of 6 months of service after his completion of 1 Year of Service,

provided that he is still employed by the employer on such Entry Date.

© The Entry Dates are the first day of each Plan Year.

[J Simmons]

Dennis,

Is this Time of Participation applicable to both the 401k feature and the profit sharing feature? Or is this the profit sharing feature (and there is no vesting required) and there is a different provision for 401k time of participation?

[Dennis Povloski]

You caught me!

This is actually for a DB plan, but since it was an eligibility question rather than a DB specific question, I posted here. I have a lot of respect for the folks that post on this board.

As you point out, a 401k feature has its own special maximum eligibility rules. I believe the same maximum eligibility rules apply to DBs and other Non-elective contributions.

Hopefully, this doesn't null the whole discussion.

[J Simmons]

I think that if there is no special caveat as I described in post #7 above, then you have the problem pointed out by WDIK in post #6 above.

Also, I've never dealt with a minimum service requirement that blended the year of service concept with the elapsed time method. So I'm not sure of the efficacy of that.

[Dennis Povloski]

This is, perhaps, the strangest document I've come across. Not that you're interested, but it has a cash balance formula for the doctors and a traditional db formula for the staff. And, of course, there was no determination letter included in my copy of the files...joy!

[Guest Sieve]

With 1-year eligibility, a one-time annual entry date only works with (i) age 20-1/2 & 6 months, or (ii) a retro entry date to the first of the plan year in which eligibility requirements are met (which does not work with 401(k) provisions)--the latter is often found in DB plans. Neither of these fits the facts here, though.

But, if this plan has immediate full vesting (as suggested in the OP), then why would the provisions outlined in post #8 NOT work? The individual will enter on the 1st of the plan year after 18 months of employment (i.e., no more than 18 + 12--i.e., 30 months--after hire), while full 2-yr. eligibility permits a full 30-month wait (24 + 6) before entry. In the post #8 provisions, an individual will, in fact, enter the plan no later than the earlier of (i) 6 months, or (ii) the 1st day of the plan year after the completion of 24 months of service. So, just like dual entry dates in a 1-year eligibility plan, this 2-year eligibility provision (for an immediately-vested plan) grants participation earlier than required.

[Dennis Povloski]

Sieve, I agree with you on the service requirement, but I'm still concerned about the age requirement per WDIK's and J Simmons' comments. If someone had previously met the service requirement, but didn't turn 21 until January 2nd, they would have to wait until the following January 1st to enter the plan. Wouldn't the participant need to come in at least 6 months after his or her 21st birthday?

The discussion took a turn to focus on the plan's original definition for eligibility. The definition was amended to a standard age 21, and one year of service definition, but the Entry Date was not amended, so it is still the first day of the plan year (January 1) coincident or next following.

I guess because of the 100% vesting, the service requirement is not bad, but the age requirement still concerns me.

I think the plan needed either dual entry or a retroactive entry date from the get go.

[RTK]

My 2 cents.

I think the individual who satisfies the age 21 requirement after satisfying the service requirement must begin participation within 6 months of satisfying the age requirement. Thus, I think the single (prospective) entry date requires an age 20-1/2 eligibility requirement, regardless of whether 0, 6 or 18 months of service would be used.

[Guest Sieve]

I amend my post to agree with all the rest of you who point out that the provision does not work for the age requirement. RTK is right--it should be age 20-1/2 (or else it should have something comparable to dual entry dates).