Retroactive Adoption

[Just Me]

OK, how about this one? Brand new DB plan (yes, there are some) effective 1/1/11. Plan is adopted on 3/1/11. Employee terminated on 2/1/11, but was otherwise eligible as of 1/1/11. Plan says if employee terminates prior to the date the plan is adopted, employee is not a Participant, even though he was employed and otherwise eligible on the plan's effective date of 1/1/11. Can do or no can do?

[Andy the Actuary]

Perhaps it would help if we could ask, "What's the difference?" In particular, would this employee have become vested?

In any event, you have no choice but to follow the Plan until such time where IRS says provision doesn't fly. Consequently, the employee is excluded and should not be considered in the 430 valuation. You also might want to verify that Plan satisfies 410(b) and 401(a)(26) with this employee excluded.

[ScottR]

OK, how about this one? Brand new DB plan (yes, there are some) effective 1/1/11. Plan is adopted on 3/1/11. Employee terminated on 2/1/11, but was otherwise eligible as of 1/1/11. Plan says if employee terminates prior to the date the plan is adopted, employee is not a Participant, even though he was employed and otherwise eligible on the plan's effective date of 1/1/11. Can do or no can do?

I don't see a problem, as long as the document language clearly excludes the individual, and the plan passes coverage testing without him.

... Scott

[Just Me]

100% immeidate vesting.

My issue with this is that if an employee has turned in his notice and the company was going to execute the plan next week, but now they wait three weeks until after his termination date, then they are excluding him at their discretion. Smells bad.

[Calavera]

1.404(a)(4)-5 provides rules for determining whether the timing of a plan amendment (including the establishment of the plan) has the effect of discriminating significantly in favor of HCEs. And these rules are based on all of the relevant facts and circumstances.

I would explain it to the plan sponsor, and as long as Plan Sponsor gets his facts straight, he should be fine ... until IRS disagrees with his reasoning.