Providing Credit for Service for Selective Purposes

[401 Chaos]

Any problem with the Buyer in a deal providing credit for prior service with the seller under the 401(k) Plan but limiting that to only selective benefits. For example, if new hires under Buyer's 401(k) must attain a Year of Service to get matching contributions and profit sharing contributions, could the Buyer provide credit for prior service just for matching contribution purposes so that all or nearly all received matching contributions right away but were required to have a year of service with Buyer to get profit sharing contributions?

[12AX7]

What type of document are you using? If you're using a pre-approved document, you would see which provisions are available for crediting past service. My document does not have exactly what you are proposing, but it does allow the waiver of min age/service requirements as of a certain date for specified sources. This may work for your client.

[401 Chaos]

Thanks. In this case it is an individually designed plan and it also does not generally provide what is being considered. In the past, they have acquired groups and either amended the plan to expressly provide credit for prior service with the target company for all purposes (e.g., anybody with a year of service with the target was eligible for both match and profit sharing at year-end) or did not recognize prior service at all (e.g., they picked up employees of an acquired group or division but just treated them as new hires such that they had to be employed with the buyer for at least a year to become eligible for the profit sharing and match regardless of their length of service with their old company). What they want to do here is something in the middle--recognize prior service just for the match but not for the profit sharing portion of the plan.

[masteff]

My biggest question is can your systems accomodate such a provision (ie, can the technology handle it)? Most payroll systems drive eligiblity off a single date, so you need functionality that permits it to use 2 separate dates to drive the 2 separate calcs. Don't go down the rabbit hole of administring that manually... it's bound to become a mess.

[401 Chaos]

Thanks. They say they can handle but I share your concerns generally. Not really my idea of how to go about this but have basically just been asked if there is any reason it absolutely cannot be done. Seems if they are free to recognize prior service credit or not then recognizing for only certain purposes might be allowed but I'm concerned that may require additional testing. In this case it appears the new group will resemble the overall group demographically so reasonable mix of HCEs and NHCEs. Wonder if you kick up more concerns if the group were largely HCEs. For example, could you be required to perform BRF testing on the particular group getting service credit?