eligibility Different eligibility provisions for different job classes

[TX-TPA-Guy]

I know a plan can have secondary eligibility say for people hired after a certain date for example but can I plan also have multiple eligibility provisions depending on job class? For example bank tellers are eligible to enter the plan after three months of service and loan officers have to wait one year and 1000 hours to be eligible.

 

[MoJo]

No offense, but it's questions like this that make me want to go back into private practice specializing in correction of plan operational errors....

The short answer is "yes, but...."  Potentials for errors in mis-characterizing an employee's classification, mis-calculation of required service for that class, problems when one changes job classification (say, a teller works 4 months and is in, but then moves to a job that requires 6 months to be eligible)., testing issues and the like.  We have problems with just dual eligibility requirements (deferrals and match) or with "part-time" (one year, 1000 hours) and "full time"(something less than a YOS).  Getting more specific just makes the plan that much more difficult to administer.

Before getting into the weeds, what exactly is the plan sponsor attempting to accomplish with such a situation?

[Tom Poje]

agree with MoJo, can be done but you have to be real careful.

one of the issues is coverage testing

you have to use the 'minimum' requirements. so everyone falls under the 3 month rule at that point, whether eligible or not. so you have some people who would be includable and not benefitting for coverage purposes.

chances are 'otherwise excludable' rule will save the day, but once you use that for coverage, now you have to use that for ADP testing (if this is a 401k plan) again, it might not make a difference, but it might.

[TX-TPA-Guy]

They're wanting to do this because of the companies' turnover. They basically changed eligibility to three months of service so a couple of the newly hired execs could get into the plan sooner.  Now they want to change it back because a lot of people don't even stay there the required 12 months or 1000 hours. One issue I foresee is that these execs will probably eventually be over the compensation limit and then could we potentially have a discriminatory issue with HCEs being eligible sooner than the rank-and-file.  I forgot to mention that they are also trying to stay under 120 to stay away from an audit.

I don't have the EOB with me but would you happen to know where I can find this in the code where multiple eligibilities are allowed?

thank you guys so much for your help! I truly appreciate it.

[MoJo]

41 minutes ago, TX-TPA-Guy said:

....They basically changed  eligibility to three months of service so A couple of the newly hired execs could get into the plant sooner....

...and there is the rest of the story.  Always a problem when plans are changed to favor "execs."

If they want to change back, I would recommend still, keep it simple....

[TPAJake]

Good luck with that--The type of Sponsor that causes these issues is the root of the problem.  Then history will repeat next time they have some super special new exec to recruit.  Chapter 3 of that book is them blaming you for the whole mess

[hr for me]

they'd be smarter to address the turnover issues in another way.  While turnover affects the 401k plan, it affects a lot of other things in the business also (agree with TPAJake that the sponsor is the root of the problem, not the elig requirements)....They are just trying to cover a symptom rather than diagnose the underlying problem  (whack a mole anyone?)... heck I can give a good guess just on what you have already written!

[Tom Poje]

probably fails 1.401(a)(4)-5 plan amendment (a)(2) facts and circumstances

on my humble opinion, eligibility to let in an 'executive', I assume someone who will be an HCE, but simply isn't because he was just hired. they didn't treat any other employee this way.

and then, to follow up by changing eligibility back clearly indicates the intent to favor an HCE because now we are no longer letting 'everyone' in.

but then, maybe I take a different view of facts and circumstances. I don't look at just year one and say, "But he is not an HCE yet"

I suppose if the executive is not going to be an HCE it isn't a problem, but that seems like an awful lot of trouble to bring someone into the plan you want to favor.

[Belgarath]

Yeah, in the future, I'd consider just amending to credit service with the prior employer instead. Back in the day when we submitted all plans for d-letters, we often had such plans - it was a common recruiting tool, and the IRS always approved it. Now, if we'd credited service with "X" to bring in an exec, then immediately amended to no longer do that, then hired some NHC from "X" - I think that would've been a different story, and goes to Tom's citation. Also, of course, just because the IRS didn't have a problem with it 15 or 20 years ago does not necessarily mean they feel the same way now...

[TX-TPA-Guy]

Thank you everyone for your insight on this. I agree that it is not the best solution but sometimes outside forces make this happen. 

I like the credit prior service idea. Is this an option with the standard prototype document? Can we amend at will for this do you think?, even if SH?