Should we amend the plan to allow immediate entry

[pam@bbm]

Plan Sponsor wants to amend their plan to allow 1 newly hired employee to enter their 401(k) Plan immediately. The normal eligibility is 1000 hours and 12 months of service. This person will be an NHCE. He will also be made a plan trustee at the same time, replacing a retiring trustee. I am the TPA and we use Relius document. Should we do this?

[david rigby]

"We?" Isn't the sponsor in charge of setting terms of the plan?

But seriously, it appears to be an amendment showing "favor" to one person, but that is prohibited for HCEs, not for NHCEs. Do you have any other reason to believe it could be discriminatory and/or inadvisable?

[ESOP Guy]

To be a little cynical here but who makes an NCHE a trustee?

I guess it could be the new CEO and since there is no look back pay they aren't an HCE. But if that is the case I would think about it a little harder.

Maybe it is all fine but that seems like an odd fact pattern to me.

[pam@bbm]

Just looking for a second opinion. Many of the plans we administer have trustees that earn less than the HCE limit. It happens. This particular plan is a non-profit in a small town.

[Belgarath]

I'm not clear from your original post - is the plan being amended to waive eligibility for this one person by name or title or whatever, or are you just amending it to change overall plan eligibility to immediate? If the latter, certainly no problem. And the fact that this person will be named Trustee is also no problem.

Can you perhaps amend the plan to include service with a prior employer (wherever this person worked before) which would hopefully allow immediate entry, so it has the same effect without actually modifying normal 1 year/1000 hour requirements? Only hitch there might be if this employer also hires other people who have worked for that prior employer.

In my prior life, we frequently amended plans to include prior service with a prior employer, even for Highly Compensated employees, and filed for d-letters, which the IRS always approved - we never had a rejection. It was a commonly used "recruiting tool" by employers to entice certain people to come to work for them, and as long as there was no "pattern" of doing this routinely, the IRS didn't have a problem with it. (I'll state here that I do not know if they currently feel the same.) But since in your situation it is a NHC anyway, then I'd have no qualms about it.

[GMK]

To be a little cynical here but who makes an NCHE a trustee?

​A reasonable question, the answer to which is companies in parts of the country where you don't need to make 120k to keep from starving.

I know the government writes regs, rules, etc. based on their assumption that the cost of living is uniform across the country ... but (spoiler alert) it ain't so. Too bad they think that it's too difficult to factor real-world pay diversity by region into regs. (thanks for letting me soap box)

[ESOP Guy]

To be a little cynical here but who makes an NCHE a trustee?

​A reasonable question, the answer to which is companies in parts of the country where you don't need to make 120k to keep from starving.

I know the government writes regs, rules, etc. based on their assumption that the cost of living is uniform across the country ... but (spoiler alert) it ain't so. Too bad they think that it's too difficult to factor real-world pay diversity by region into regs. (thanks for letting me soap box)

I actually live in a fairly low cost Midwest city so I know what you mean. Having said that most officers in companies even in this area are HCEs.

The not for profit fact makes sense. I have seen plenty of not for profits that don't have any one making enough to reach the HCE limit.