"grandfathered" insurance?

[AlbanyConsultant]

This plan has insurance for three employees (1 HCE, 2 NHCEs). They are claiming that they were advised (by someone who is now conveniently deceased) that because they haven't offered this option to new employees in over a decade, it is "grandfathered" in and is not a problem.

This does not smell right to me at all. There are 2 HCEs who don't have insurance and 10 NHCEs who don't; (2/12) / (1/3) < 70%. Is there any way that this can be OK?

Thanks.

[Belgarath]

Take a look at 1.401(a)(4)-4(b)(3). As long as this BRF (life insurance) was satisfying the nondiscrimination test at the time it was prospectively eliminated, then you should be fine.

[AndyH]

Would that exception require a plan amendment?

[My 2 cents]

Would that exception require a plan amendment?

Do you mean "Would their having stopped offering that insurance to new employees require a plan amendment?" If buying insurance was provided for under the plan, the answer to that question would probably be "yes". I would guess that the reason that they stopped offering it to new employees ought to be documented in some form. Board minutes, amendment, whatever it would have taken to formally stop offering it. It would have been at that point that the BRF would have had to have been non-discriminatory. If they just stopped offering it, though, not sure that maintaining it for some but not others would qualify for grandfathered treatment.

[AndyH]

The language in Belgarath's cite seems to require an amendment. This is analagous to the "Fresh Start" language in the general testing section of 401(a)(4). Just wondering if this has ever come up in discussions with the IRS or how others view that.

Oh, and Albany Consultant, I don't think you would need to have a 70% ratio. The BRF testing ratios are based on Average Benefit NCT testing standards.