New plan waives entry requirements for anyone hired on a certain date

[jkharvey]

does this constitute a BRF that would need to be tested (and will fail) since only the 3 owners are allowed to enter as of a date that is earlier than the 1 year of service requirement? This is a new plan and a new employer. No one was hired (or so they say anyhow) until a couple of weeks after the owners established the practice. The owners all have the same date of hire in the third quarter of 2012, so would not be eligible to enter using the standard 1 year of service. All other employees were hired after the owners and are not eligible because of the 1 year wait and they were not employed on the date being used for the "employed on date" waiver.

[Tom Poje]

see 1.410(b)-6(b)(2) which, as I understand the rules says

if you have dual eligibility you have to satisfy all the conditions...

so let's say you try to invoke the otherwise excludable rule for testing.

how many people satisfy 1 year? zippo.

how many benefit who have less than 1 year? only HCES. you fail.

note: for purposes of ADP test you can get by because of a special rule. but you are not talking ADP testing, you are talking about coverage, and there is no special rule for coverage like that.

[401king]

Tom, would the same result be true if the Plan were started today with just HCEs, today as an auto-entry date, and then they hire someone in a few months? Or is the original example unique because they are backdating the auto-entry date, after having hired some employees?

[Bird]

I'm not sure that it's a dual eligibility issue but it might be. I always considered this to be under the "pattern of amendments" clause in 401(a)(4) somewhere (I think) and it smells pretty bad. Even thought it is something that's done all at once, you are effectively amending the plan. I don't let people do it in these circumstances.

[Tom Poje]

well last week the florescent light bulb frazzled in my office and that smelled bad, really bad and I would say Bird is correct, this smells, and maybe worse.

I think someone once said you take a 'photograph'. you simply have a scenario where some people (HCEs) with < year of service get something and other people(NHCEs) don't.

The ERISA Outline Book 8 VIII C

says "When a plan has more than one set of eligibility requirements....the plan has 'dual eligibility'.

the exclusion rule applies to the lowest age/service requirements applicable to any employee benefitting under the plan. (emphasis is the Book)

so I don't see how you can get around a coverage failure.

Again, under the otherwise excludable rule, I test those with 1 year of service (no one) and those with less than 1 year. that is everyone, but amongst the everyone you have HCEs receiving and NHCEs not.

[jkharvey]

Thanks all. You have each addressed my concerns on this one. The "smelliest" factor is that the NHCEs hired within a couple of weeks of the owners. Had the timing been much different, I might have been able to make another argument, but it just seems that this was obviously done for HCE benefit, SMELLY!!! Thanks again.

[Kevin C]

1.401(a)(4)-5(a) has the rules for determining if the timing of an amendment is discriminatory. Establishment of a new plan is considered an amendment under these rules. It's a facts and circumstances determination. If the plan in question is set up so that only HCE's enter early and the NHCE's have to wait, I think you have a problem.