new plan for old service

[Effen]

Individual A earns $200K each year from a C-Corp he owns from 2000-2005. He converts the C-Corp to an S-Corp and takes $20,000 as W-2 income from 2006-2010.

Can I establish a plan in 2010, based on the $200K/year comp he earned from 2000-2005 for 415 and benefit purposes? My initial thought was yes, but I wonder if the change of corporate structure impacts anything. (neither corp ever maintained a db plan.)

Also, the S-Corp makes a lot of money without requiring many hours worked. He is currently age 71. I know I can avoid the MRDs at least until he is vested, but what if we use a 1000 hour rule for vesting service and he can document he never works 1000 hours after the effective date of the plan. I'm thinking about using 1 hour of service for accruals, but 1000 hours for vesting. If we use a 5 YOP rule for NRA, wouldn't that allow me to avoid MRD's until his NRA, or do you think that might be considered some sort of avoidance and therefore be frowned upon by the boys in DC?

I think it is ok to ignore past service for vesting, even though I am considering past comp for 415 limits and benefit accruals. Any problems with my thinking?

[Andy the Actuary]

My recollection is that 414(s) defines compensation in terms of 415©(3) so would believe you're okay. You haven't mentioned 401(a)(4) and consideration would be that this adoption is nondiscriminatory. Plans may measure service for eligibility, vesting, and benefits accrual using different crediting methods and the only requirement to count past service is for eligibility. Again, assuming past service for benefit accrual, a consideration should be made as to whether or not granting of past service could be construed as discriminatory.