Have a client with an existing grandfathered 401(k) plan
They want to have 2 different levels of eligibility for different employee classes

One class of employee would come in right away
The second class of employee would continue to wait

2 questions:
1. Can we have a municipal 401(k) plan with 2 different eligibility definitions?
2. I'm thinking that as we're only going to be considering employees who have zero compensation in the prior plan year, that all these employees would be NHCEs. Is that right? Or am I thinking to much like a for profit 401(k) plan?

Thanks

As you already suspect, you'll want to turn your mind to the super-specialized world of governmental plans.

If you don't already have it, Governmental Plans Answer Book [Aspen Publishers] is the source you're looking for. It explains, in Q&A form, governmental plans to a practitioner whose grounding is with nongovernmental qualified plans. The citations are thorough, and include off-Code sources.

Also, consider that Federal tax law is not the only law that's relevant to your questions; State law governs what a municipality may, or must not, do in providing or maintaining a retirement plan.