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Amendment to increase hours required

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A small CB plan (~25 participants) currently requires 1 hour to benefit for accrual. They want to freeze for 2020. Obviously it is too late to issue a 204(h) notice by 12-31-19. Could they get around this by amending the plan to require 1000 hours for 2020, and then just make sure to freeze before 1000 hours are worked in 2020?

I do understand they could just freeze ASAP and limit the 2020 accrual to be based on comp through, say, the first week of January (assuming it only takes a few days to confirm with them and get the 204(h) issued). But it'd be easier to just have no accruals for the year.

Thoughts? Thanks in advance.

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I think you have the same 204h timing issue. Would not the increase in hours requirement result in an expected decrease in the rate of accrual? In which case your amendment could not take effect until after 1/1 and then participants would already have earned an accrual, at least on 2020 comp to date. Also be careful in case you have any flat dollar credits. If all participants were expected to work 1000+ hours then maybe the amendment would not necessitate a 204h notice - but remember that IRS can take a series of amendments and consider them as one, the reason being to prevent circumvention of various rules, which is what you are trying to do here, so a savvy agent (don't laugh people) could say you did not comply with 204h on that basis. I would tread lightly, do 204h now and freeze effective 15 days hence and provide minimal 2020 credit (assuming no flat dollar amounts, especially for HCEs). If the first 2020 payroll doesn't happen until 1/10 say, then maybe your argument can be zero plan compensation thru 1/3, for example, and so no credits on that basis. Good luck

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