Want to make ineligible a department tha is now eligilbe

[Jim Chad]

Under the no good deed goes unpunished, here is what we have.

Employer has about 150 employees with about 130 eligible. Now eligibility is one year and 1,000 hours and age 21. When they started the Plan 2years ago, they allowed anyone with 6 months and age 21. This made eligible a department where most people work about 5 hours a week. None of them defer. If we make that department ineligible it would get us under 100 eligible employees. I think this would mean no audit requirement for 5500.

Am I correct? Am I missing anything?

[BG5150]

And none of them have an account balance (from TH or SH)?

[Jim Chad]

Correct. There has never been an employer contribution. Needless to say the HCE's and Keys have deferred very little. From what I have seen so far, the testing has been done correctly.

[12AX7]

There would still be an audit for the current plan year. Next year perhaps not, if under 100 participants at the beginning of the plan year.

[Jim Chad]

If we make ineligible the employees of one department, where most employees work less than 5 hours per week, what do we do with the few people with account balances?

[12AX7]

Take them to a barn dance? I don't know, but unless there's a distributable event for these participants where you can get rid of them, you will count them for 5500 purposes.

[Jim Chad]

Thanks for the Chuckle, 12AX7. That's what I thought.

Next question: They just changed eligibility to 1 year and 1,000 hours. Does this mean that those people that have never worked 1,000 hours in a 12 month period are no longer eligible to defer? This seems to me to be sort of like excluding a division where some employee were eligible to defer.

Is being a "Participant" a protected benefit?

[QNPG]

Thanks for the Chuckle, 12AX7. That's what I thought.

Next question: They just changed eligibility to 1 year and 1,000 hours. Does this mean that those people that have never worked 1,000 hours in a 12 month period are no longer eligible to defer? This seems to me to be sort of like excluding a division where some employee were eligible to defer.

Is being a "Participant" a protected benefit?

No, being a participant is not a protected benefit. It is, however, a benefit right or feature once you become a participant.

[Guest Sieve]

Jim -- The elimination of participation could generate a partial termination. (See Rev. Rul. 2007-43: ". . . a partial termination can occur due to . . . plan amendments that exclude a group of employees who have previously been covered by the plan . . .")

[12AX7]

With a small group of participants with account balances, the cost of doing so may well favor the elimnation of the audit requirement. Good catch, Sieve!

[Tom Poje]

Jim:

depends on how you word the change in document language.

for example, you can have language that says "anyone who is a participant on such and such a date will continue to be a participant and anyone else will require 1 year svc.

(Thats no different than in a new plan saying anyone hired before the start of the plan is a participant and all other require 1 year of service.)

[12AX7]

I think something like that would still clock the plan in with over 100 participants, unless Tom you have something else in mind that I'm not thinking of at the moment.

[Tom Poje]

my comment was more to mean, for example:

Plan originally had immediate entry.

Bob is in the plan.

Plan now changes to a 1 year wait.

Bob has never had a year of service nor deferred nor received anything

Could Bob still defer?

That depends on how the amendment is done. If it is written to say anyone who was a participant remains a participant, then yes Bob still could defer.

If its written to mean that you must have a year of service to be eligible then end discussion, Bob is now ineligible, and since he didn't have any $ previously then he wouldn't be counted for anything. If Bob had a previous balance, then he could no longer defer, but he would be counted because he has a balance.

[12AX7]

Makes sense. I lost track of the facts in the original post where most of these individuals employed two years ago had <1 YOS.