The plan sponsor changes eligibility wait period from six to twelve mo

[Guest Clint Schuckel]

Would appreciate comments on the following situation: Employee was hired on Feb 1, 2000 when the company's 401K plan operated under six-month waiting period. Plan sponsor amends plan, extending the wait period to twelve months on June 1, 2000. This change is then applied to all employees hired in the first five months of 2000. Is the plan sponsor within its legal rights to apply the extended wait period retroactively?

[Guest PAUL DUGAN]

I can't give a cite but I belive the answer is YES-NO-MAYBE.

If this only excludes Highly Compensated EEs _- NO.

If this only excludes Nonhighly Compensated EEs _- YES.

If this excludes both EEs _- TEST.

[david rigby]

I disagree. The amendment has no effect on current participants, so the plan sponsor is within its rights to make such amendment.

[Guest michaelv]

Plan eligibility requirements, as they apply to employees who are not yet participants, are not a protected benefit (since they are not participants, they have no plan "rights" to protect). Therefore,there's no problem with the employer switching to 12 months and making the folks hired previously wait the extra time. Although, it could cause legitimate ill-will for the people affected by the switch.

[Guest RBeck]

pax and michaelv are right. If you are not a participant in a plan, you have no rights that need be protected under that plan. The amendement extends the wait for employees to enter the plan, it does not harm current participants. There's no ERISA violation here, but there might be a PR problem.

[Earl]

There was a case where the eligibility req. got changed twice with the expressed intent to exclude this one guy. He sued and lost. Don't remember his name, but the sponsor did not fight the fact that they were targeting this guy, but it was within their right to do it, as long as he had not yet entered the plan.