Entry date for rehired employee in new plan

[drakecohen]

We are setting up a plan effective 1/1/23. Only HCEs in the plan (doctors). About 25 participants, 15 of whom are partners.

 

Issue is with an employee for 10 years who terminated in April, 2022, making a salary of under $135,000 for 2022. That employee was rehired mid-January 2023 and would need to be classified as NHCE for 2023 if eligible since not  a partner.

 

To get around including them can we have a single entry date (January 1) with a six-month wait? Since the rehire was not employed as of 1/1/23 then would they come in as of 1/1/24 or is there an issue with service spanning?

[Bri]

The past service counts even though it's before the effective date of the plan.  (Not like vesting where you can often ignore pre-plan years.)

What about using the top-paid group election to move some of the non-owner docs into the NHCE group?

[Paul I]

Consider granting everyone immediate eligibility who is actively employed on the effective date of the plan.  Anyone hired after that date have work One Year of Service.  Anyone rehired after the effective date is subject to the One Year Holdout rule where they have to work One Year of Service before any past service is recognized. 

The tricky part is an individual subject to the One Year Holdout needs to be given an employer contribution retroactively to the point they would have been otherwise eligible, but they are not able to make deferrals during the holdout period.  Arguably for testing purposes, the individual was not eligible at any time in the that first year.  The retroactive contribution is a contribution made, deducted and allocated in the following year.

I've never seen this done and haven't researched it, but others here with plans with the holdout rule may have addressed whether the individual was included or excluded in the ADP testing.