Amendment: Waiver of Eligibility for one specific NHCE participant

We are looking at taking on a new client for 2022.  They have an existing 401k plan; non-safe harbor.

In reviewing the adoption agreement and plan document, the current TPA drafted an amendment in 2021 that provided a waiver of eligibility for one specific NHCE participant.   

The reason being is that participant was allowed into the plan before they were eligible (not eligible until 1/1/2022) and made salary deferrals to the plan in 2021.

I've never heard of this approach of a waiver for a single NHCE employee; thoughts?

Sounds like they applied the correction under Rev Proc 2021-30 Appendix B 2.07(4)

were there other similarly situated employees who could have participated?  It is applicable in only one year and to one named employee? Should always consider other forms of potential discrimination (e.g., age)?

Yes, there were other NHCE that were hired before this NHCE that were not given the waiver and several were older than this EE.  The only reason he got the waiver was because the client inadvertently let this one NHCE in early and didn't want to refund their money.

just as an addition - here is the language - it does not reference any other forms of potential discrimination.. thoughts?

4)  Early  Inclusion of  Otherwise Eligible  Employee Failure.   (a)  Plan Amendment Correction Method.   The Operational  Failure  of  including an otherwise eligible  employee in the  plan  who  either  (i)  has  not  completed  the plan’s  minimum  age  or  service requirements,  or  (ii)  has  completed the  plan’s  minimum  age or  service requirements  but became  a participant  in the plan on a  date earlier  than the  applicable plan entry  date, may  be corrected  by  using the plan amendment  correction  method  set  forth in this paragraph.   The  plan is  amended retroactively  to change the  eligibility  or  entry  date provisions  to provide for  the inclusion  of  the  ineligible  employee to  reflect  the  plan’s actual  operations.   The  amendment  may  change the  eligibility  or  entry  date provisions with respect  to  only  those ineligible  employees  that  were wrongly  included,  and only  to those  ineligible  employees,  provided (i)  the  amendment  satisfies  §  401(a)  at  the time it is  adopted,  (ii)  the  amendment  would  have satisfied §  401(a)  had the  amendment  been adopted  at  the  earlier  time when it  is  effective,  and  (iii)  the employees  affected  by  the amendment  are predominantly  nonhighly  compensated  employees.    For  a defined benefit  plan,  a  contribution may  have  to  be  made  to the  plan  for  a  correction that  is accomplished through  a plan amendment  if  the plan is  subject  to the  requirements  of §  436(c)  at  the  time  of  the  amendment,  as  described in section  6.02(4)(e)(ii).

Yeah.  This should be fine.

The thing I always remember is that in your 410b test, you have to test using the lowest eligibility standards, so they've just created some non-benefiting NHCEs who didn't get to start early like our lucky one.  However, people like these are generally otherwise excludable, and "probably" don't screw up 410b in general, if you do test separately.

On 12/13/2021 at 11:32 AM, C. B. Zeller said:

Sounds like they applied the correction under Rev Proc 2021-30 Appendix B 2.07(4)

What Zeller said. Perfectly acceptable correction under EPCRS.