Eligibility BrainStorm

[Mr Bagwell]

Plan has 1 year, 1000 hours, semi entry.  IMO, this is a good design for the plan because the employer is keeping out the maximum number of employees to contain cost.  There is enough part timers to warrant it.  The plan is safe harbor match 100% of 5%.

The employer is looking for a yearly entry, still keeping out the maximum he can.  I told him the yearly entry is a problem because some employees that wouldn't make the 1 year, semi entry, would likely to come into the plan.  He would like to steer clear of semi-entry because he missed an employee at 7/1 and had to make up some deferrals and sh match.

I get it, he's tight, but that's his choice and he's following the rules.  I'd do the same.

I'm stumped, because I think the 1 year, 1000 hours, semi entry makes the most sense.

Got any good scenarios?

[C. B. Zeller]

The only reasonable way to deal with a single entry date in a 401(k) plan is to reduce the service requirement to 6 months and the age requirement to 20-1/2. Then they enter the plan on the first day of the plan year following.

It's going to be up to the employer to decide whether the cost of allowing some additional employees into the plan outweighs the administrative burden of checking who is becoming eligible and handing out SPDs and enrollment kits one extra time per year.

Edit: If this were a profit sharing plan, with 100% immediate vesting, he could use the 2-year eligibility rule to keep more people out. But of course that option is not available in a 401(k) plan.

[Tom Poje]

and with a single entry date, then of course the contribution is based on full year comp/deferral , as opposed to someone entering mid year.

[Bird]

Agreed, 1 year/semi-annual is generally best for keeping employees out as long as possible.  Your job is to make him understand that (and help ID 7/1 entrants).

[Larry Starr]

When we run the 12/31 year end work, we also have a routine that prints out the individuals who MIGHT be eligible on 7/1 if they continue working until that time.  We also send a second Safe Harbor Notice  in June to all those clients with a note to ask us if they aren't sure who will be entering on 7/1.  I would NOT change the plan; all his part timers now come into the plan and that's got to be much more expensive than the occasional flub on entry. FWIW.

[Mr Bagwell]

I agree with you Larry.   Thanks for the input.

Bird...  I'm trying.  :)

[Mr Bagwell]

Resolved.  Let plan as is.

I want to thank everyone for the comments.  You confirmed what I was thinking, but just didn't want to miss anything.

Bird's challenge of "make him understand that" was very timely. 

Thanks everyone.