Disaggregate Otherwise-Excludable - 401(a)(4)

[JesseQG]

I have a scenario and I want to see what you all think.

A dentist is purchasing a practice (asset purchase) as of 9/15. He will have had nothing to do with the practice prior to purchase; no employment. He wants to start a cross-tested 401k PSP plan right away and wants all nine staff members eligible immediately and then wants to shift to statutory eligibility requirements moving forward.

If he were to recognize predecessor service for eligibility purposes, then everyone will be eligible right away except one of the nine staff members, the dentist and his spouse. If we then add a dual eligibility bringing the three of them into the plan, those three are otherwise excludable employees and for 2017 and 2018, and may be disaggregated from the the other staff members for 401(a)(4) general testing.

Anyone see any problem with this line of thinking? Do you think recognizing predecessor service for eligibility plus using dual eligibility is problematic? If not, there are no HCEs in the non-otherwise excludable group so it passes automatically. Following that line, if for the otherwise-excludable group I’m passing 401(a)(4) on a benefits basis, is it necessary to allocate a gateway contribution to all staff members or only the one staff member in the otherwise excludable group?

[ESOP Guy]

15 minutes ago, JesseQG said:

I have a scenario and I want to see what you all think.

A dentist is purchasing a practice (asset purchase) as of 9/15. He will have had nothing to do with the practice prior to purchase; no employment. He wants to start a cross-tested 401k PSP plan right away and wants all nine staff members eligible immediately and then wants to shift to statutory eligibility requirements moving forward.

If he were to recognize predecessor service for eligibility purposes, then everyone will be eligible right away except one of the nine staff members, the dentist and his spouse. If we then add a dual eligibility bringing the three of them into the plan, those three are otherwise excludable employees and for 2017 and 2018, and may be disaggregated from the the other staff members for 401(a)(4) general testing.

 

I will let the people who are much better then me speak to the testing issues but I think you might be making the eligibility provisions too hard or harder then needed.  Unless the dentist wants to give credit for prior service for some reason other then this provision why not simply write the eligibility provision this way:

1) Write the general eligibility provision a statutory provision like the dentist wants

2) Add a simple sentence that says:  Notwithstanding any other provision regarding eligibility any employee employed on 9/15/2017 is eligible and enters the plan on 9/15/2017.

That seems to cover everyone you want to cover and doesn't cause confusion if say for example if the people ought to get prior credit for prior years worked for vesting or anything else. Everyone that is working for the practice this Friday enters the plan this Friday. 

Like I said before if the dentist has another reason to want to give credit for prior service then I could am wrong but based on the little that is here that is how I would write an the eligibility provisions for such a plan. 

 

[JesseQG]

Right, the dual eligibility would bring everyone into the plan regardless but what I'm wondering is if by granting predecessor service for eligibility purposes as well, does it create a situation where I can disaggregate otherwise-excludables (the dentist, his spouse and one staff member; since the others naturally satisfied the statutory eligibility requirements while working for the prior owner, service for which is being granted in this plan by recognition of predecessor service) thereby lowering the costs associated with getting him the maximum allocation for the first few years?