I have a situation where six people that all quit the same company and started their own. They also brought two NHCEs over with them. They are ready to start a retirement plan and they wish to make everyone 100% vested as of the effective date of the document. My problem is that my prototype will not accomodate this. Now, if I design the plan to count all service with the company they were all formerly employed by, I could get by this. My question is would I have any discrimination problems with this design.

Also, I am going to assume they will want to amend the plan in the near future to eliminate prospectively the provision in regards to the service with the prior employer.

All thoughts and comments are appreciated.

I don't see any problems with the initial design. This type of provision isn't at all uncommon.

However, if they amend the plan 1 month after setting it up, which then has the effect of excluding the 42 additional NHC that they also subsequently hire from the same previous company, then yes, I think it's a problem. If you are applying for a determination letter on the plan after amendment, I don't see how you could justify this on the ?believe it is Demo 7, but I don't have one handy at the moment?

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Are they trying to fully vest only those employed on the effective date of the plan and apply a different vesting schedule to future employees?

Also, if you don't mind sharing, what prototype document are you using?

I believe that is what they are wanting to do. They are going to have several NHCEs to start off with that would be 100% vested so I am not as concerned about discrimination in regards to the start of the plan. I am more worried about them amending out the language and hiring on employees from the old firm in the future.

The document is Accudraft.

My next plan is to use the volume submitter and modify language to make everyone employed at the effective date 100% vested and thereafter everyone who is subsequently hired would follow a vesting schedule. I am thinking this would work.

Personally, I like this approach better than changing the predecessor service provision.

I agree.