Different Eligibility Requirements for 401(k) Contributions

I'm taking over a Plan and working on the Cycle 3 Restatement.  What I find interesting is that there are two different sets of eligibility requirements for 401(k) contributions:

Senior Managers - 21 and 6 months of service

All Other Employees - 21 and 1 year of service

To me this seems discriminatory since it's benefitting the managers (upper level) and allowing them to participate sooner, but I wanted to see what everyone else thought.

Thanks!

It's allowable as long as it passes the coverage test. You have to test coverage using the most permissive age and service conditions, so any employees who are not senior managers, who have completed 6 months of service, would have to be treated as non-excludable in the test.

Unless those senior managers are owners, or relatives of an owner, then they are not HCE year 1.

Is there even a coverage test even needed?

Coverage test is always needed. It might automatically pass if there are no nonexcludable HCEs (or NHCEs, for that matter) but that is a different story.

Assuming semi-annual entry dates: Senior manager A and regular slob B are both hired on 8/1/2020. A makes $30k/month, so $150k in 2020. B makes less. A is HCE for 2021 and B is not. A's entry date is 7/1/2021 and B's is 1/1/2022. If they were the only employees then the plan has a coverage failure for 2021 since the HCE is a participant but the NHCE is not.

Contrived example aside, you have to test using the 6 month eligibility for everyone every year, even if you don't actually hire any senior managers that particular year. The otherwise excludable rule is available, and it may help you pass testing, or it may not.

Fair point.