Can bargaining parties exclude employees from right to defer?

[MAM08]

Here's the situation:

An employer sponsors a company 401(k) plan, covering collectively bargained and non-collectively bargained employees. The collectively bargained employees also participated in a multiemployer money purchase plan, with an hourly contribution set out in the CBA.

The multiemployer money purchase plan converted to a profit sharing/401(k) plan. The profit sharing component is essentially the former money purchase contribution. The employer does not want to participate in two 401(k) plans for several reasons. It might be open to participating in the newly converted multiemployer plan if it only has to continue the employer contribution (the profit sharing contribution) and its employees will be prevented from making deferrals to the multiemployer plan. They would continue to be able to make elective deferrals to the company 401(k) plan.

Would excluding these employees from the ability to make elective deferrals to the multiemployer plan violate the one-year elgibility requirement? I think it would, but one could argue that a blanket exclusion is different than an eligibility period.

Even if this would otherwise violate the one-year eligibility requirement, the employees will still be able to make deferrals to the company 401(k) plan. Would this be enough to justify prohibiting deferrals to the multiemployer plan?

Finally, if there is a way to do this, is there an advantage to having the prohibition on deferrals to the multiemployer plan included in the CBA and/or adopted by the multiemployer plan's trustees (e.g., "participants who are eligible to make elective deferrals to a company plan shall not be permitted to make elective deferrals to this plan").

Thanks.

[austin3515]

It would not. It's not an exclusion based on service. IT's an exclusion based on the fact that they are covered by another plan. If they can bargain for it, there is nothing stopping them.

[MAM08]

Just so I'm clear, the bargaining parties wouldn't be prohibited from agreeing that a unit would be allowed to participate in the profit-sharing portion of a multiemployer plan, but not the 401(k) portion? In this case, the exclusion would be based on participation in the employer's 401(k) plan.

Thanks for the help, much appreciated.

[austin3515]

Just so I'm clear, the bargaining parties wouldn't be prohibited from agreeing that a unit would be allowed to participate in the profit-sharing portion of a multiemployer plan, but not the 401(k) portion?

That;s correct. The union can bargain to be covered by both plans, neither plan, or any combination thereof. The bargaining process supersedes the coverage tests.

[MAM08]

Thanks again.

[ErisaGooroo]

Would the union employees still be considered an excludable employee for 410(b) testing IF some of the union employees did not receive a benefit under the collectively bargained agreement? Some union employees benefit and some union employees receive no benefit under the terms of the collectively bargained agreement for the employer.

[david rigby]

Just in case, the existence of a collective bargaining unit is not the only relevant condition. See IRC 410(b)(3)(A), and note especially the phrase beginning with "if":

(3) Exclusion of certain employees For purposes of this subsection, there shall be excluded from consideration—
(A) employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and such employer or employers,...

[ErisaGooroo]

Thank you.

What if the evidence that retirement benefits were subject of good faith bargaining, and as a result, it was decided that some would receive a benefit as part of the contract and some would not?

In other words, does the union employee have to actually benefit to be excludable as a union employee?

[Mike Preston]

No.

[ErisaGooroo]

I found this in the EOB and it gives me pause... to me this means as part of the negotiation, the union employee doesn't necessarily have to receive a benefit to be considered excludable. What am I missing?

"Exclusion of union employees to test non-union plan (union exclusion). When testing a non-union plan, the collectively bargained (union) employees are excludable employees. A union employee is excludable only if the employee is covered by a collective bargaining agreement in which retirement benefits were the subject of good faith bargaining. ..... This exclusion recognizes the separate protections afforded union employees through the collective bargaining process. What the union employees negotiate in the way of retirement plan benefits (including no benefits) will not impact the ability of a non-union plan to satisfy the coverage requirements."

[ErisaGooroo]

Thank you for your help.

[austin3515]

You're not missing anything. If the union negoatiates no employer contribution because they want more money in their paychecks or because they want a more generous health plan, they are still excludable. that's what the EOB says, and Mike Preston's concise though accurate answer to the last question you asked is in agreement.