Eligibility Plan Amendment Rules

[Thomas Red]

I have a plan sponsor that wants to amend the eligibility requirements and entry dates to allow a specific employee to enter the plan.  After that employee enters the plan, the plan sponsor wants to amend the eligibility requirements and entry dates back to what they were.

 

Is this allowed? If not, why?

[CuseFan]

Assume currently an NHCE. I think you can do, but why amend twice? Why not amend once to say, "notwithstanding, employee X will enter the plan effective MM/DD/CCYY" or something similar, or employees hired on A or between B and C?

[Thomas Red]

So you can do a stand alone amendment to say that a specific employee will enter the plan on a specific date, without changing the eligibility requirements or entry dates?

I assume this is only allowed for NHCE's?

[Nate S]

8 hours ago, Thomas Red said:

So you can do a stand alone amendment to say that a specific employee will enter the plan on a specific date, without changing the eligibility requirements or entry dates?

I assume this is only allowed for NHCE's?

Yes, this is actually the recommended correction for early entry issues.  It is always allowed for NHCE's; if an HCE is involved then the amendment must be non-discriminatory, to the extent there are affected NHCE'S.  For example, if the HCE is the only ineligible, then no issue with bringing him in early.  But, if you have ineligible NHCEs who were hired before the HCE, or will attain similar terms of service during the plan year, then you would have to bring them in too.

[Thomas Red]

9 hours ago, Nate S said:

Yes, this is actually the recommended correction for early entry issues.  It is always allowed for NHCE's; if an HCE is involved then the amendment must be non-discriminatory, to the extent there are affected NHCE'S.  For example, if the HCE is the only ineligible, then no issue with bringing him in early.  But, if you have ineligible NHCEs who were hired before the HCE, or will attain similar terms of service during the plan year, then you would have to bring them in too.

If the employee is a NHCE, can we execute the amendment prior to the employee entering the plan?  You mentioned that this is a correction, which I understand as being completed after the employee enters the plan.

[Nate S]

2 hours ago, Thomas Red said:

If the employee is a NHCE, can we execute the amendment prior to the employee entering the plan?  You mentioned that this is a correction, which I understand as being completed after the employee enters the plan.

Yes, you can do it anytime.

[CuseFan]

Agreed, but I would do currently as a planned amendment rather than later as a correction - just my personal preference, which also ensures you changed plan eligibility for this person before they became an HCE if they do subsequently become one.

[My Three Sons]

Does your opinion change if the employee was just hired, so he is a NHCE for the current year, but his salary is 400,000 and he will be a HCE next year.

[CuseFan]

Although it "smells funny", no, if you do the amendment when the person is hired or shortly thereafter, by the letter of the law they are NHCE.

[C. B. Zeller]

It could cause an issue if the employee will be HCE next year, so be careful. Especially if they are hired in the second half of the year, meaning that their statutory entry date would be 1/1 of the year after they first become HCE. Remember that the coverage test has to be done using the most lenient age and service criteria that applied to any employee in the plan. Since this one person had no age or service requirements, all employees would need to be considered in the coverage test.

There is also the nondiscriminatory timing rule. Even if the numerical test passes, you can still have a nondiscrimination issue if the amendment was timed such that it disproportionately benefits HCEs.