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.

[FORMER ESQ.]

Any eligibility classification that is a proxy for imposing a service requirement violates 410(a) on its face. Your eligibility classification of hourly employees is fine so long as there is a 410(a) failsafe language (e.g., hourly employee credited with 1000 hours of service would be eligible). Also, don't forget that the LTPTE rules would have to be an exception to the hourly exclusion unless you want to deal with missed deferral opportunity issues later.