plans split for audit

[cpc0506]

We have acquired a client who has split its employees into two plans in 2010 based on hire dates.

Plan 001 is for all employees hired before 1/1/2007. Plan 002 is for all employees hired on or after 1/1/2007.

Now Plan 002 is getting close to audit size and the client would like to amend the two plans effective 1/1/13 and change the hire dates for Plan 001 to cover employees hired before 01/01/2009 and Plan 002 for all employees hired on or after 1/1/2009.

Is it legitimate to move employees around like this? Or does the client need to add a third plan that moves employees from Plan 002 to Plan 003?

Does anyone have clients that have multiple plans to avoid plan audit? Has anyone moved employees between plans like this?

[chc93]

We have a client with 4 plans for this reason. The split of employees is based on well-defined divisions within the company. Participants are only moved if the switch divisions. I can't recall in the past if a whole division was moved from one plan to another, in which case all participants in that division would have moved from one plan to another. In our csae, we had ERISA attorney set everything up.

In your case, with date of hire as the definition for the split, I would think you'll need a third plan, which would not overlap with the existing two plans... but I don't know for sure. Maybe need ERISA attorney?

[ETA Consulting LLC]

Creating separate plans in order to keep both plans below (or from approaching) 120 is a strategy I have employed on countless occassions. It is an effective strategy, but you must consider it from all angles. You don't want to exclude employees from a plan for not having 3 years of service (i.e. not hired before 2009), as that would violate the service requirements. However, you can do better on the determination. Heck, I have even seen plans (identical in design) where the only difference was the last digit of the social security number (odd or even). Just ensure you don't violate any other statutory rule such as age/service requirements.

When you compare the cost of an additional plan to the cost of an audit, sometimes it's worth the additional plan. The plans don't even need to be tested separately, just defined separately on different documents (each with their own employees and own Form 5500). So, it should always been a consideration; even if you don't do it.

Good Luck!