Recogniing Service w/ Prior Employer - Projected HCE

[austin3515]

Client bought assets of another business in November 2015 (unbeknownst to me). Calendar year plan. They chose to recognize service with this entity. Only one employee was affected by this decision and they allowed him to make 401k and receive match in 2015 (and currently), where the eligibilty is 1 YOS/Age 21. His salalry is $135,000 per year.

When determining whether or not the amendment to recogize service with this other entity is allowable, I need to make sure the amendment is nondiscriminatory. The same is true both for an amendment effective today and cetainly when doing the retroactive amendment under ECPRS (which must predominantly benefit NHCE's). What are your thoguhts regarding whether or not I can treat this individual as an NHCE versus an HCE?

My initial thought about EPCRS is that the "predominantly benfits NHCE's" requirement is meaningless if you dont have to take into account their future status. I suppose the same concern can be true for any amendment that effectively waives eligibility for a new hire.

[My 2 cents]

I may be wrong, but I don't think you ever have to take into account whether someone will become an HCE due to future earnings. In this case, if you are counting service before the acquisition, do you have to also take into account earnings before the acquisition to determine HCE status?

I may be wrong here, also, but couldn't ownership, if it comes into play, affect the HCE determination before there are enough earnings to make the person an HCE based on earnings?

[austin3515]

This guy is not an owner. He is clearly an NHCE at the time of the potential amendment. But there must be something to prevent a sponsor from waiving eligibility for anyone hired on 11/1/2015, if that someone is going to make $150K. Clearly that is discriminatory. It can't be "anything goes."

[Bird]

I think that we have more than enough rules to prevent egregious offenses and if one "pending" HCE enters a year early because he was an NHCE at the time, that is indeed ok.

If you told me that there were 20 employees and they only waived eligibility for this one person, where others would have otherwise been eligible if prior service had been credited, then I might think differently. But if they are just counting prior service, and he's the only one who had any, then I don't see the harm or any issue. If they had acquired the company a year earlier, and applied the service requirement, it seems that he and all other employees would wind up entering at the same time as what will actually happen.