Solo 401(k) Class Exclusions

[Nic Pospiech]

I have a new client who started a Solo K for her and her spouse in 2017.  When they set it up they chose Immediate Eligibility.  They excluded Hourly employees as a class (some of them reaching Age 21 - 1 YOS.)  They have had hourly employees (over 23 of them) over the years - some reaching Age 21 and 1 YOS - but have never allowed them in the plan. 

My question is - can you exclude Hourly employees (w-2) as a class - but also select Immediate Eligibility?  It would seem to me that this is discriminatory....but I do know that Hourly can be a little tricky.  I just wanted to make sure I am not misunderstanding this.  

Thanks for the help!

 

[WCC]

3 hours ago, Nic Pospiech said:

can you exclude Hourly employees (w-2) as a class - but also select Immediate Eligibility? 

Yes. Any hourly excluded employee who moves into a non-excluded class would become immediately eligible. The bigger problem I see is how did the plan pass coverage in prior years?

They excluded Hourly employees as a class (some of them reaching Age 21 - 1 YOS.)  They have had hourly employees (over 23 of them) over the years - some reaching Age 21 and 1 YOS - but have never allowed them in the plan. 

 

[CuseFan]

Exactly - the plan can exclude hourly employees as a class but if they satisfy 21 & 1 (1000 hours) they cannot be statutorily excluded from coverage and nondiscrimination which creates a demographic compliance failure in this situation.