Eligibility change - 30 day waiting period?

Hi

A record keeping company (RK) that is also the document sponsor insists on 30 day waiting period for the following amendment to be effective:

Plan has 401k+ 3% NE (non-elective) SH+PS provisions

Currently, 401k and NESH has 1 year wait and age 21 with first month following completion of eligibility as entry date. PS portion is 21/1 year with dual entry.

Plan sponsor wants to eliminate the 1 year rule (age 21 stays) for the 401k+SH portion and have immediate entry as of date of hire but does not want to change PS provisions.

Is this true that they have to wait 30 days for a more favorable eligibility?

RK insist on it so that they can change and provide an updated SH notice.

Thank you

Any takers?

On 4/3/2022 at 8:32 AM, Jakyasar said:

Is this true that they have to wait 30 days for a more favorable eligibility?

I am not aware of a regulation that would require a mandatory 30 day wait to amend. My guess is the RK cannot amend any faster due to their internal processes and therefore they are pushing the 30 day timeframe to give them time to amend. 

I don't think the issue is one of waiting to amend - but rather having notice in the hands of participants at least 30 days prior to the effective date of the amendment....

Is a 30 day notice required when amending the eligibility service requirement to immediate? 

Since this is a safe harbor plan, you have to take into account the rules for mid-year changes to safe harbor plans.

Notice 2016-16 III.C.1 states:

Quote

An updated safe harbor notice that describes the mid-year change and its
effective date must be provided to each employee otherwise required to be provided a
safe harbor notice under § 1.401(k)-3(d), 1.401(k)-3(k)(4), or 1.401(m)-3(e), as
applicable, within a reasonable period before the effective date of the change. Whether
this timing requirement is met is based on all of the relevant facts and circumstances,
but this timing requirement is deemed to be satisfied if the updated safe harbor notice is
provided at least 30 days (and not more than 90 days) before the effective date of the
change. If it is not practicable for the updated safe harbor notice to be provided before
the effective date of the change (for example, in the case of a mid-year change to
increase matching contributions retroactively for the entire plan year, as described in
section III.D.4 of this notice), the notice is treated as provided timely if it is provided as
soon as practicable, but not later than 30 days after the date the change is adopted.
For purposes of this section III.C, if the required information about the mid-year change
and its effective date was provided with the pre-plan year annual safe harbor notice, an
updated safe harbor notice is not required.

It sounds like the recordkeeper wants to rely on the 30-day safe harbor. Under the circumstances, I think a shorter period (or even immediate) would be reasonable, as the change does not affect any current participants. However, you and/or the plan sponsor may have an uphill battle convincing the recordkeeper of that.

Thank you, I already did but they pulled a fast one saying amendment can only be effective beginning of the month, so I saved 25 days, go figure. At one point, it is not worth the battle once the war is over. It took them 2 months and lots of waste of my time get this done for a simple thing. Just venting.