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The situation under discussion is almost an exact match to the situation in TAM 9735001, which says amending the allocation formula after the end of the plan year would violate 411(d)(6) if anyone receives less under the new formula than they would have received under the old. It also says a formula change after the end of the plan year is analogous to a change in the conditions for receiving an allocation after they have been satisfied that also violates 411(d)(6).

Ooooo... gonna have to check on that; might mean we will have to use the 8822-B. Why on earth would they have dropped that mechanism?????? Just to piss me off!!!!

Every time we have something like this it was an audit per year. I doubt a CPA would issue a 12/31/13- 12/31/2019 report anyway.

I think your last sentence is a great idea for those who have this as a concern; at least they can document that every so often they send the form with the paycheck.

Short answer, it depends. How is the CB plan itself passing non discrimination testing?

I agree with you that a testing failure is not required to be able to do an 11(g) amendment. After a discussion a few years back, I found the preamble to the regs that added 11(g) where it specifically says a testing failure is not required. I don't know where you draw the line, either. Yes, zero is too low for me. I think a conservative approach would be to give the HCEs the desired allocation under the current formula, with the NHCEs getting what the document says they get, and then add on the 11(g) amendment. The line may be somewhere in between. I wouldn't want to be a test case. Of course, put everyone in their own allocation group before anyone is eligible for the contribution for that plan year and it's a non-issue going forward. The question really boils down to what is protected by 411(d)(6). If an 11(g) amendment can have the effect of completely replacing the allocation method after the end of the plan year, then 411(d)(6) is meaningless.

The concern is that an audit could come in and notice that there are several hundred employees for whom no completed deferral forms exist in the company records. Therefore, how does she prove that she offered the plan to all the participants if they don't return the forms? Of course it's not required to get one back, but we've all had pesky auditors who make life difficult when they don't see a complete set.

I had a mental block about this for some time and will spell it out for anyone who is similarly confused. The idea is that if you pass the deadline for returning excess deferrals, you leave them in, and whenever they are taken out (termination of employment, retirement, etc., maybe many years later) they are taxed just like any other plan asset. But "taxable in the year of deferral" means that the participant doesn't get a deduction. So in this case the returns are amended to show higher income, and that's about it. Mike is pointing out that when they come out, they are/should be just a regular distribution, with regular coding (1 or 7 or whatever). It's too late for a corrective distribution. If the "regular" distribution wasn't allowed, then that creates a different problem. FWIW and hoping that the freeing of the mental block was in fact accurate...

For what it's worth, this is explicitly permitted for incentive stock options, which also need a FMV exercise price. See 1.422-5(c): (c) Additional compensation. An option does not fail to be an incentive stock option merely because the optionee has the right to receive additional compensation, in cash or property, when the option is exercised, provided such additional compensation is includible in income under section 61 or section 83. The amount of such additional compensation may be determined in any manner, including by reference to the fair market value of the stock at the time of exercise or to the option price.

Our reference source has the a4 regs tagged as published 9/3/93. The following language was in the regs published 9/3/93. The exception listed includes the language "(to the extent permitted under section 411(d)(6)) ". I thought the typical 11(g) situation was that an allocation is done under the existing terms of the document, it fails testing and the 11(g) amendment gives additional benefits to NHCEs sufficient to pass the testing? I don't see anything in the TAM that conflicts with that. The TAM addresses replacing an allocation formula after the end of the plan year, not adding additional benefits to it.

When you look at it objectively as a single transaction, it looked discounted.

I'm not sure what your question is - Is she concerned employees will claim that they were never offered the ability to make deferrals? Sounds like the plan does not have automatic enrollment - She gives them the enrollment forms or instructions - then she process payroll as normal unless they turn in a deferral form. Some ERs make a note of when then provided the forms (and how, paper, e-mail etc) so that they can document that there was no missed opportunity to defer. But if the participant doesn't turn in a form - there is no deferral. She doesn't need a form saying ZERO to proceed with ZERO deferral. Getting a ZERO election form returned is of course best practice - but it's not required.

Is the bonus discretionary or committed contractually?