changing eligibility

[Bird]

I had it burned in my mind that once someone is in a plan, they are in. I think I am slowly learning otherwise.

The situation is a safe harbor match 401(k) with immediate eligibility. If we change that to one year of service, do all of those part-timers/short-timers just cease to be participants? Is any documentation other than the amendment itself required in order to achieve that result?

(I know - it is, um, uncertain if these folks were given the opportunity to defer.)

[ETA Consulting LLC]

Well, plan participation is not a protected right under 411(d)(6). So, that is pretty much a slam dunk; actually suprised me back in the late 90's :-)

Such change, of course, would need to be done on a prospective basis. You still cannot retroactively amend a plan to take away a right that already existed under the plan's written terms. And, an amendment is all that is needed (and of course you'd consider all amendment timing issues dealing with the safe harbor and your particular situation).

I'm sure you're already up to speed on the missed deferral opportunity issues. I think we've all beaten that one to death over the past few years

Good Luck!

[Belgarath]

Anti-cutback rule only protects accrued benefits - not the right to accrue future benefits. So, if you have immediate eligibility, and you amend for the next year to be one year of service, then those folks who participated previously but do NOT have a year of service in any year will not be eligible to participate. You CAN grandfather in existing participants, but aren't required to.

Of course, if they have already satisfied a year of service, then the amendment won't exclude them. You'd have to find a valid exclusion classification to then exclude any such people.

I see ETA replied while I was typing...I type very slowly with all these extra thumbs.

[RatherBeGolfing]

This very question actually caused a stir at a session on anti-cutback at ASPPA Annual this year. The presenter (correctly) explained that since participation is not a protected right you could change the eligibility requirements and "exclude" current participants who had not met the new eligibility. I was surprised to see the number of people at the session who passionately argued that the presenter was dead wrong.

I often use the "once they are in, they are in" phrase when discussing employees who normally work under 1,000 but for some reason may have a bump in hours. I think people mix those situations up sometimes

[Mike Preston]

I think I was in that session. Same recollection. Same surprise.

[Bird]

Thanks all. I was "raised" in a one-man shop; wouldn't trade it for anything but certain things I thought were true aren't. Always learning.

[Kevin C]

The plan document should address what happens when there is a change in the eligibility requirements. Our VS base document says those previously in the plan, but not meeting the new eligibility requirements stay in the plan unless a certain part of the adoption agreement specifies otherwise.

I was in that session, too.

[John Feldt ERPA CPC QPA]

And the caution is to check your plan document (the basic document especially if applicable) to see that it does not somehow override what you are trying to do when you write up the amendment to begin excluding those that had previously entered.

[RatherBeGolfing]

And the caution is to check your plan document (the basic document especially if applicable) to see that it does not somehow override what you are trying to do when you write up the amendment to begin excluding those that had previously entered.

Always know your document. Period.

I think the example that started the conversation at Annual was a plan where the owner's wife and kids were in the plan but had never had 1000 hours. The question was, do we now have to exclude them from participation if we change eligibility to A21 1YOS? So sometimes you are trying to keep people in rather than keep them out.

[Kevin C]

It was a question from the person seated next to me. She was convinced that when you amended eligibility you were required to exclude those who did not meet the new requirements. Apparently, she did not like the answer she got from the speaker and the same answer from a couple of us who talked with her after the session. Someone submitted the same question to the Ask the Experts session, saying the prior session audience was split evenly on whether the speaker was correct. I remember seeing a few who looked like they disagreed with the speaker, but nowhere near half. But, I was sitting toward the front, so I didn't see the whole room.

[John Feldt ERPA CPC QPA]

So the speaker did not say "it depends on the language of the amendment and the language of the existing document?"

[Mike Preston]

My recollection of the events is now hazy and the above (contradictory and confusing) messages don't help.

I thought the comment in #4 was spot on that the audience member was convinced that a change in eligibility could not disenfranchise somebody already in the plan. The speaker disagreed.

There was no discussion of whether a change in eligibility must disenfranchise, but had there been it would have followed the comment in #11.

[coleboy]

OK, I'm taking over a plan that currently has 6 month eligibility. They want to amend it to 1 year/ 1000 hours eligibility. So are all those employees that never worked 1000 hours during the year not not allowed to participate?

[RatherBeGolfing]

OK, I'm taking over a plan that currently has 6 month eligibility. They want to amend it to 1 year/ 1000 hours eligibility. So are all those employees that never worked 1000 hours during the year not not allowed to participate?

If it is as cut and dry as that, yes. The more common approach would be to amend prospectively. For example, you could amend to 1,000 hours starting 1/1/17 and keep the current participants in even if they never had 1,000 hours.

[coleboy]

Thank you. I believe that is the intention is to amend 1/1/17.