Eligibility provision

Hi,

In a DB Plan Document (the plan uses a Safe Harbor benefit formula), in the eligibility section, are the following provisions:

"(1)           Eligible Employees. For purposes of Section 2.1(b), all Employees are Eligible Employees except for the following ineligible classes of Employees:

(A) Union Employees; (B) Non-Resident Alien Employees; and (C) Employees not listed on Exhibit A."

For each plan year the Exhibit A is updated to list the employees that are eligible and all employees that are not listed are ineligible . The plan covers,  each year, enough employees to cover 410(b) and 401 (a)(26) each year. A new Exhibit is created for each plan year , and the document contains the yearly Exhibits. Are there any potential issues with this method? Thank you very much for your insights.

"Definitely determinable"

1 minute ago, Hojo said:

"Definitely determinable"

Thank you. Can you please clarify?

https://www.irs.gov/retirement-plans/definitely-determinable-benefits

I don't have a problem with definitely determinable benefits. If you follow the document the benefits are definitely determinable. What I do have concerns about is a bit more esoteric. 411 d6 provides that a pattern of amendments may give rise to required continuations. For example if a participant is listed on exhibit a 3 years in a row does that establish an expectation of being on exhibit a in the fourth year? I told you it was esoteric.

Whether it is a definitely determinable issue might depend on when this exhibit is drafted - and is it signed?  In any event I wouldn't do it.

edited for spelling

On 9/15/2021 at 5:33 PM, Mike Preston said:

I don't have a problem with definitely determinable benefits. If you follow the document the benefits are definitely determinable. What I do have concerns about is a bit more esoteric. 411 d6 provides that a pattern of amendments may give rise to required continuations. For example if a participant is listed on exhibit a 3 years in a row does that establish an expectation of being on exhibit a in the fourth year? I told you it was esoteric.

Thank you very much. 

On 9/16/2021 at 9:03 AM, Bird said:

Whether it is a definitely determinable issue might depend on when this exhibit is drafted - and is it signed?  In any event I wouldn't do it.

 

edited for spelling

Thank you very much. If it's drafted before anyone accrues a benefit for the year, ie prior to working 1,000 hours (by March, or early April)? Also, if the sponsor (company) signed the document and agreed to this provision, of having a yearly exhibit, would they still have to sign each year?  Thank you.

On 9/15/2021 at 5:33 PM, Mike Preston said:

I don't have a problem with definitely determinable benefits. If you follow the document the benefits are definitely determinable. What I do have concerns about is a bit more esoteric. 411 d6 provides that a pattern of amendments may give rise to required continuations. For example if a participant is listed on exhibit a 3 years in a row does that establish an expectation of being on exhibit a in the fourth year? I told you it was esoteric.

Thank you. If the sponsor (company) signed the document and agreed to this provision, of having a yearly exhibit, would they still have to sign the exhibit  each year-meaning signed each year prior to anyone working 1,000 hours, prior to accrual of  accrual of benefits, or it is not necessary ?  Thank you very much

2 hours ago, SSRRS said:

If it's drafted before anyone accrues a benefit for the year, ie prior to working 1,000 hours (by March, or early April)? Also, if the sponsor (company) signed the document and agreed to this provision, of having a yearly exhibit, would they still have to sign each year? 

I'm going to say I don't know because I wouldn't do it this way.  You are effectively amending the plan document by drafting each exhibit, and in my world I don't see how it can't be signed (before 1000 hours are worked).  But I would control all of this through profit sharing contributions, not CB credits.

49 minutes ago, Bird said:

I'm going to say I don't know because I wouldn't do it this way.  You are effectively amending the plan document by drafting each exhibit, and in my world I don't see how it can't be signed (before 1000 hours are worked).  But I would control all of this through profit sharing contributions, not CB credits.

A26 can't be controlled with profit sharing contributions.

2 hours ago, Bird said:

I'm going to say I don't know because I wouldn't do it this way.  You are effectively amending the plan document by drafting each exhibit, and in my world I don't see how it can't be signed (before 1000 hours are worked).  But I would control all of this through profit sharing contributions, not CB credits.

Thank you. I just want to point out that this is a traditional DB, not a CB Plan.

15 hours ago, Mike Preston said:

A26 can't be controlled with profit sharing contributions.

14 hours ago, SSRRS said:

Thank you. I just want to point out that this is a traditional DB, not a CB Plan.

Got it, I jumped to a conclusion or just didn't pay attention.  Still seems like a bad way to control eligibility.

On 9/18/2021 at 5:43 AM, Bird said:

Got it, I jumped to a conclusion or just didn't pay attention.  Still seems like a bad way to control eligibility.

Bird, thank you as always. I am going back to this to hopefully gain some more clarity. You seem to frown on this annual exhibit method to exclude employees.  1. If a sponsor wants to include only the minimum requirement of  40%  of all eligible employees [401 (a)(26)] and 70% of NHCEs [410(b)], how would you recommend this be done (aside from excluding certain job classes) ? Thank you very much for any insights. ......

28 minutes ago, SSRRS said:

Bird, thank you as always. I am going back to this to hopefully gain some more clarity. You seem to frown on this annual exhibit method to exclude employees.  1. If a sponsor wants to include only the minimum requirement of  40%  of all eligible employees [401 (a)(26)] and 70% of NHCEs [410(b)], how would you recommend this be done (aside from excluding certain job classes) ? Thank you very much for any insights. ......

I think the problem here as an answer to your question is that if a plan sponsor wanted to do that almost all of us would say, you can't.  Or at least we would say you shouldn't try.

1 hour ago, Hojo said:

I think the problem here as an answer to your question is that if a plan sponsor wanted to do that almost all of us would say, you can't.  Or at least we would say you shouldn't try.

Thank you.

Hojo so 401(a)(26) and 410(b) although they allow for inclusion of only 40% and 70%, (in proportion to the HCEs that are participating) however, it is to complicated to be used on a consistent basis?

Hi,

A pleasent summer to all. In this thread from the past...the original post was about a Traditional DB Plan (safe harbor unit accrual formula). The plan includes annually just enough employees to cover 401(a)26 (40% of all eligble) and just enough NHCEs to cover 410(b) (70% of NHCE).

The plan in the covered employee section states that the following are not included in the term covered employees:

1.  employees under collective bargaining agreement 

2. Employees that are not listed on Exhibit A. (Meaning only employees that are listed on the Exhibit A are included in the plan fir the respective year and if not listed on the exhibit A then they are excluded).

A. ..There was a question raised whether the Exhibit must be signed each year or it is enough that the sponsor signed the plan document when the plan was adopted...as the plan that was signed upon adoption included this provision that each year the respective Exhibit A would list the employees that are included and are accruing a benefit for the respective year.

Does anyone have any thoughts on whether the Exhibit A must be signed each year?

B. Any employee that is not listed on Exhibit A is excluded and does not accrue a benefit for the year....(meaning the exclusion is not due to being listed on the  respective year's Exhibit...rather not being on the exhibit is the exclusion). Therefore, for the given plan year, as long as the Exhibit was not prepared yet, all would be excluded for that year. Based on this, would the Exhibit have to be prepared and  dated  prior to employees working 1,000 hours and accruing a benefit for the year...or even if the Exhibit is done after 1000 hours have accrued it is fine. Being that as long as the Exhibit was not yet prepared for the current plan year then technically all are excluded, even though they worked 1000 hours? 

Thank you in advance for any insights on this.

1 hour ago, SSRRS said:

Does anyone have any thoughts on whether the Exhibit A must be signed each year?

Just an opinion:  changing anything on Exhibit A is a plan amendment.  Thus, something must be signed (board resolution, plan amendment, probably both).

Thank you very much David. 

Your analytical mind, as always. Is appreciated.  Can it be done towards the end of the plan year, when the employees have already worked at least 1,000 hours, based on the theory above, that until the Exhibit A is done for the given year,  no one accrues a benefit, since to accrue a benefit for the year, you must be listed on the Exhibit? Or even so, the Exhibit still needs to be executed prior to anyone working 1,000 hours for the year?  Thank you.

In addition to the question just posed above regarding 1,000 hours...Can the Document have the following 2 exclusions:

1. Any HCE who is not a shareholder or spouse of the shareholder, of the corporation is excluded". 

2. Any employee not listed on Exhibit A.

Of course, the shareholder and his wife will need to he listed on the Exhibit A...

The first exclusion is sort of a security measure to ensure that no matter what HCEs are excluded from this plan (of course no HCEs will be listed on the Exhibit A.

Thank you