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Amendment To Add Last Day Requirement


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A plan that currently permits profit sharing allocations to participants with 1,000 hours wants to add a last day requirement effective 1/1/22.  I believe that not having a last day requirement is not a protected benefit, so the amendment would be OK?  Is this correct?

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Just out of curiosity, what is the profit sharing formula?  Is it grouping method?  Pro rata?  Integrated?

Why not just make it grouping method with everyone in own group.  This way you can just do away with stated conditions for a PS and artificially add them in as needed. 

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QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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If everyone is in their own group with no conditions, everyone technically qualifies for a profit sharing.  But it's up to the sponsor to allocate it.  They can choose to not give it to those not employed on the last day of the year.  Or those with less than 1,000 hours.  (Or both!)  But, say a valued employee who was there for many years "retires" in December at age 62 and the owners want to reward her for her service.  If the last day is hard coded, they would have to do an 11-g amendment to give her anything.  In the case of individual groups and no conditions, they can choose to give her something.

But if they start making arbitrary decisions, I think they lose the ABT to pass coverage.  I can count on one hand the number of plans I've had to use the ABT for coverage.  (Can still use it for nondiscrimination testing, though). 

Hope this helps.

 

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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Now I see where you are coming from and thank you for the explanation. 

However, I am not sure you can do an 11g amendment just because you want to give a contribution for the 62 year old even if with individual group approach. 11g is a corrective amendment and used if plan fails testing. I agree that additional contribution can be provided if no conditions. 

Hopefully I did not misunderstand what you are trying to explain. 

I like passing ABT as it makes 401a4 testing easier to pass, at least for my plans. 

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2 minutes ago, Jakyasar said:

Now I see where you are coming from and thank you for the explanation. 

However, I am not sure you can do an 11g amendment just because you want to give a contribution for the 62 year old even if with individual group approach. 11g is a corrective amendment and used if plan fails testing. I agree that additional contribution can be provided if no conditions. 

Hopefully I did not misunderstand what you are trying to explain. 

I like passing ABT as it makes 401a4 testing easier to pass, at least for my plans. 

You need to review the requirements for an 11g amendment. There is not now nor has there ever been a requirement to fail testing before invoking 11g.

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That's a good thought BG, but that kind of generosity doesn't exist with this employer - quite the opposite.  This is a takeover and now that they need to have a restatement done, they would like to tighten up as many provisions as possible - does anyone know of a source available that lists which benefits, rights and features are protected and can't be eliminated or reduced?

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Hi Mike

I reread the 11-g regs again and my take is a bit different than yours, as it has been in the past (11-g(2)) however as I seldomly use it (only when the testing fails), it is what it is, no further comments on my end. If I missed anything else, my apologies.

Going back to BG5150's explanation to me "But, say a valued employee who was there for many years "retires" in December at age 62 and the owners want to reward her for her service.  If the last day is hard coded, they would have to do an 11-g amendment to give her anything".

Out of my curiosity and lack of experience in the above situation as explained by BG5150 (may be I am misunderstanding as well), please note that following question.

I am assuming that she retired in December but before the 31st.

Let's assume that the plan has last day rule and 1000 hour requirement for someone retiring during the year for an allocation.

Unless there is an exception for a participant who is retired during the year (like no last day rule and/or no 1000 hour requirement), can you use 11-g amendment and go back retroactively provide an allocation just because the plan sponsor wants it, based on plan allocation provisions assumed above?

Again, i hope I did not misunderstand BG5150's explanation, somehow.

Thank you.

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Interesting, I am curious, is this because a retiring participant or applicable to any participant just because the plan sponsor wants to give more money?

Assume that no test is failing, it is just "I like you and will give money even if you are not satisfying the provisions"?

What section that allows this, I probably missed it during my reading (sorry very busy with the AFTAPs at this time, limited time to check all)

Thank you for indulging my curiosity.

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1 hour ago, Jakyasar said:

Assume that no test is failing

There are lots of testing options. If you have a test that's passing, there's probably a different way you could run the test to make it fail, if you feel it's important to show a failing test result before proceeding with an -11(g) amendment.

To put it another way, there's nothing that says you have to test under every possible combination of cross-testing, average comp, accrued-to-date, permitted disparity, standard interest rate and mortality tables, restructuring, permissive aggregation, disaggregation of otherwise excludable employees, and probably a handful of other testing options I'm not thinking of, and then only if every single one of those tests fails, are you allowed to proceed with the amendment.

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There are requirements specified in section 11 G3. If you satisfy those requirements you're good to go. Those requirements do not include a requirement to fail a test. So you could even use an 11 g amendment on a plan that covered n h c es only.

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For me, the issue has always been, and will always be, that the "title" of 1.401(a)(4)-11(g) is "Corrective Amendments".  This implies the amendment is correcting a failure... but this was not the intent of this section (never the intent? - I rely on Mike for this).

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