Amend entry date from quarterly to semi-annual

[MarZDoates]

Plan sponsor wants to amend its current non-safe harbor 401(k) plan to change from quarterly entry dates to semi annual.  Can this be done for 2018? Or would it need to be done effective 1/1/19?  

It doesn't "feel" right to  me that it would be permitted this late in the year.

I would think that if they have employees that have met the age/service to enter 10/1/18, they wouldn't be able to make them wait until 1/1/19.

Thanks!

[401_noob]

My understanding is that participation is not a protected benefit, so participants can be amended out of the Plan if the Plan's eligibility or entry dates were to be changed to the statutory requirements and they have not satisfied the statutory requirements. Usually when a plan is amended like this it will address if anyone is grandfathered in or if it will apply to individuals hired after the effective date. Now there may be language in the Plan's underlying document that may prohibit this, so I would start there. I know in your situation you are asking about employees that are about to enter the Plan and my reply was regarding employees that had already entered the Plan and were participating. FWIW, I don't see a problem with this. 

I'm curious to see what others have to say. 

[RatherBeGolfing]

7 minutes ago, 401_noob said:

My understanding is that participation is not a protected benefit

Sort of. 411(d)(6) protects the right to benefits that are already accrued, not the right to accrue future benefits.  So, a participant could be excluded until they meet the new eligibility. 

For a change in the current plan year, you cannot take away the right to a benefit that already accrued when the change is made.  

 

[ESOP Guy]

34 minutes ago, RatherBeGolfing said:

 

For a change in the current plan year, you cannot take away the right to a benefit that already accrued when the change is made.  

 

To me this is like the debate can you add last day language to a plan after people have worked a 1,000 hours.  Have these people accrued a benefit in a plan that only requires you to work 1,000 hours or is the benefit accrued after the sponsor declares there will be a discretionary contribution and working 1,000 hours.

I have always been taught the safest thing to do is to never amend a plan so a person who otherwise would get an allocation will not if it were not for the amendment at the time of the amendment.  In this case if a person has met eligibility and crossed a date of entry under the current rules they should not have that entry amended away if there is going to be a contribution in the current year. 

You might want to search this board and see if you can find (I couldn't but I know they exist) the threads about amending a last day requirement into a plan after people have worked 1,000 hours in a year.  That would seem relevant to this discussion. 

 

[Kevin C]

If the only thing changing is the entry date from quarterly to semi-annual, I don't see how any participants are affected.  Anyone who entered 7/1/18 or earlier would still be in the plan with semi-annual entry dates.  The ones affected are those who would enter 10/1/18 if the plan were not amended.  If the amendment is adopted before 10/1/18, the plan can be amended to make them wait until the next semi-annual entry date (1/1/19) to participate.  The employer might have an employee relations problem if they do it, but they can do it.

I do wonder what they intend to accomplish with the change. 

[Bird]

15 hours ago, Kevin C said:

I do wonder what they intend to accomplish with the change. 

Amen.  I'd at least make it effective 1/1/19.  But I agree it can be done. 

[Larry Starr]

20 hours ago, MarZDoates said:

Plan sponsor wants to amend its current non-safe harbor 401(k) plan to change from quarterly entry dates to semi annual.  Can this be done for 2018? Or would it need to be done effective 1/1/19?  

It doesn't "feel" right to  me that it would be permitted this late in the year.

I would think that if they have employees that have met the age/service to enter 10/1/18, they wouldn't be able to make them wait until 1/1/19.

Thanks!

As usual, we don't get the full story.  ALL POSTERS OF MESSAGES:  Please give the full story and you will get the best answers the quickest.

What's missing here?  What the employer trying to accomplish!  Is he trying to eliminate any employees who have already met the requirements, or just apply it to future eligibles.  My guess is the latter.  Let's make that assumption for this query.

Since we are past the 7/1 quarterly entry date and we are prior to the 10/1 entry date, there is no reason why this can't be amended as of today (right up until 9/30) to change to semi annual entry dates, and anyone who would have entered 10/1 will have to wait until 1/1/19 IF THEY ARE STILL HERE.

[Luke Bailey]

I'm not sure and have no time to research, but I believe that many years ago I came across an old pre-ERISA rule against "curtailments" that I thought was still in effect and precluded you from amending eligibility to make someone who was newly eligible, but who had not yet qualified for an allocation, now be ineligible.

[Bird]

It's definitely ok.  At least the IRS said it was; the case is North Shore Auto but I can't find it for all the ads...don't recall if it was a PLR or what.

They changed the eligibility at least twice.

[Tom Poje]

Ground Control from Major Tom (Poje)....

oh wait it's from as recent as permissible changes to a safe harbor. it would be strange you could change entry dates to a safe harbor and not a non safe harbor

https://www.irs.gov/retirement-plans/mid-year-changes-to-safe-harbor-401k-plans-and-notices

Examples of permissible mid-year changes

If they satisfy the notice rules, if applicable, safe harbor 401(k) plans sponsors may mid-year:

1. Increase future safe harbor non-elective contributions from 3% to 4% for all eligible employees.
2. Add an age 59 ½ in-service withdrawal feature.
3. Change the plan’s default investment fund.
4. Alter the plan rules on arbitration of disputes.
5. Shift the plan entry date for employees who meet the plan’s minimum age and service eligibility requirements from monthly to quarterly.
6. Adopt mid-year amendments required by applicable law (for example, statutory law changes or court decisions).

[Luke Bailey]

Bird and Tom Poje, I want to make clear what you think the effective date can be. So, e.g., I go from monthly to quarterly entry dates. I amend, say, August 20. Can the amendment apply to folks hired in July who got in on August 1, if they have not yet elected to defer anything, or maybe even if they have, and they have an eligibility hiatus until October 1? If I can't apply it to that person, can it apply to someone hired on August 2, who would have gotten in September 1? Of course it can apply to someone hired after August 20.

[Tom Poje]

in the case of safe harbor

https://www.irs.gov/retirement-plans/mid-year-changes-to-safe-harbor-plans-or-safe-harbor-notices

Shift the plan entry date for employees who meet the plan’s minimum age and service eligibility requirements from monthly to quarterly, provided that the amendment is limited to employees who are not already eligible to participate in the safe harbor plan.

[Larry Starr]

3 hours ago, Luke Bailey said:

Bird and Tom Poje, I want to make clear what you think the effective date can be. So, e.g., I go from monthly to quarterly entry dates. I amend, say, August 20. Can the amendment apply to folks hired in July who got in on August 1, if they have not yet elected to defer anything, or maybe even if they have, and they have an eligibility hiatus until October 1? If I can't apply it to that person, can it apply to someone hired on August 2, who would have gotten in September 1? Of course it can apply to someone hired after August 20.

Clearly, it can apply to someone who has not yet met the eligibility requirements, one of which includes BEING THERE ON THE ENTRY DATE.  Until the entry date, the person isn't in the plan and hasn't met the eligibility requirements.  Just like having a last day employment requirement for allocations; you can change allocation provisions right up until that last day.  To make the answer clear, you CAN exclude the one hired on  August 2.

[Luke Bailey]

Thanks, Larry.

[RatherBeGolfing]

3 hours ago, Larry Starr said:

To make the answer clear, you CAN exclude the one hired on  August 2.

What about the folks hired in July and entered on August 1?  Quarterly entry dates are still earlier than the statutory requirement, so they should be able to exclude them as well.  Im not sure what they will gain by excluding them for 10 days, but I still think the could if they wanted to.

[Bird]

17 hours ago, Luke Bailey said:

Bird and Tom Poje, I want to make clear what you think the effective date can be. So, e.g., I go from monthly to quarterly entry dates. I amend, say, August 20. Can the amendment apply to folks hired in July who got in on August 1, if they have not yet elected to defer anything, or maybe even if they have, and they have an eligibility hiatus until October 1? If I can't apply it to that person, can it apply to someone hired on August 2, who would have gotten in September 1? Of course it can apply to someone hired after August 20.

If they are in they stay in.  Electing to defer is not relevant.

No you can't apply it to the person who got in August 1; yes you can to the one hired August 2 who is not in the plan yet.

[Bird]

11 hours ago, RatherBeGolfing said:

What about the folks hired in July and entered on August 1?  Quarterly entry dates are still earlier than the statutory requirement, so they should be able to exclude them as well.  Im not sure what they will gain by excluding them for 10 days, but I still think the could if they wanted to.

If the change is very simply limited to changing the eligibility requirement and/or the entry date, that will not affect someone who has entered the plan.  It can't be retroactive.

Having said that, I think there is some (in my mind theoretical and preposterous) way to effectively "kick them out" but I don't think we are talking about that.  

[RatherBeGolfing]

8 minutes ago, Bird said:

If the change is very simply limited to changing the eligibility requirement and/or the entry date, that will not affect someone who has entered the plan.  It can't be retroactive.

Sure it can.  If I have age 21 and 1 month of service and change it to age 21 and 1YOS those who have not met age 21 and 1YOS are excluded until they meet the new requirement.  I'm not 100% sure if the same applies to a change in entry dates but I can't find a good reason why it wouldn't. 

[ACK]

This type of amendment can be effective at any future date, even if it has the effect of "booting out" employees who have already entered the plan.  So although some posters here think that someone who has already entered the plan cannot be made ineligible by the amendment, in fact they can.

Per the ERISA Outline Book (Chapter 2, Section VI, part E) Just because an employee qualifies as a Participant in the plan does not guarantee the employee the right to participate in the plan for the rest of his employment.  The anti-cutback rule only protects his accrued benefit, not his future benefits.  An employee's status as an active participant can be eliminated by modifying the eligibility requirement in a way that the employee is not longer satisfying the requirement for participation.  The employee will not accrue additional benefits until he or she re-establishes the right to participate under the modified eligibility requirements.  

[Bird]

I stand corrected, I guess.  This is one of those things that was hard-coded in my brain by my first employer.  I can still not like it though. 

[RatherBeGolfing]

6 minutes ago, Bird said:

I stand corrected, I guess.  This is one of those things that was hard-coded in my brain by my first employer.  I can still not like it though. 

Yea its one of those areas where just because you can do it doesn't mean its a good idea...

 

[Larry Starr]

I just wish everyone would go back to the original question that was asked, not the question that was NOT asked.  The employer wants to change the eligibility; are people who are due to come in 10/1 on the 10/1 entry date guaranteed that right? The answer is NO, as has been said.  

The REASON is not because there is a way to "kick people out"; here, they are not in yet because 10/1 hasn't occurred yet, and being there on 10/1 is one of the requirements to be "in".  Therefore, a change in the entry date PRIOR to their entry is NOT kicking anyone out.  That is the answer to the question asked.