Participant Elects Eligibility/Vesting?

[lkpittman]

We have an employer with a 401(k) PSP who wants to allow employees to make a one-time election of chosing between 1 yr eligibility w/vesting schedule for match and profit-sharing or 2 yr eligibility w/immediate vesting. This smells bad to me, but I can't pinpoint why. Has anyone heard of allowing the employee to elect eligibilty/participation/vesting provisions? I'd love some comments. Please tell me it can't be done (and why . . . ).

[rcline46]

A plan cannot require more than a 1 year wait for entry into a 401(k) and an employee cannot elect out of the wait. There can be a 2 yr wait (100% vesting) for match / psp contributions.

What is this employer trying to do? Did he hire an ERISA atty for advice on this arrangement?

[lkpittman]

401(k) elig/participation is immediate; the 1 or 2 year wait and vesting is for the psp and matching components, as indicated in my prior post. Any comments on allowing the participant to make the decision?

[rcline46]

If this is one plan document, then I would not proceed without an IRS letter of determination. If two separate plans, then participant must 'waive' out of one of the plans. 401(a)(26) is not a problem. Plans cannot be aggregated for testing because elig and vesting are different. Employees in opposing plans must be tested as a 0 in 'waived' plan. Could be complications.

I see administration problems, but I really don't see anything illegal. BUt I would require the scheme to be submitted to the IRS for their approval.

[actuarysmith]

I would think that even if you got a Det Letter on this scheme, you would still need to test each group (benefit structure) for non-discimination in terms of Benefits, Rights, and Features.