Standardized Plans - Last Day of Plan Year Rule

[KateSmithPA]

I am looking at standardized adoption agreement for a 401(k) plan that our company is taking over. According to this adoption agreement, an otherwise eligible participant must be employed on the last day of the plan year in order to receive an allocation of any employer non-elective contributions and/or employer matching contributions. I hate to sound stupid, but I always thought you could not have a last day of plan year rule in a standardized plan. Could someone please explain this to me?

[Medusa]

A standardized plan should require a contribution for all except htose who terminated with less than 500 hours of service. So you are correct, either the document is being misread, or the Service let something get through that shouldn't have. I have one like that, where the Service let a standardized prototype get through that doesn't require all related employers to adopt the plan.

[AndyH]

I have seen one also, and had the same reaction. Good question.

Anyone have a different answer?

[Guest AFRICA6796]

A standardized plan is designed to satisfy the minimum coverage and nondiscrimination requirements, and is required to cover all employees- as such -it cannot have a last day provision. The last day provision can only be elected in a nonstandardized plan.

This may sound like an oxymoron - is a standardized plan has a last day provision- it is no longer considered a standardized plan- it is now an individually designed plan that requires it s own determination letter,

[Medusa]

Here is a differing opinion on whether an incorrect standardized prototype gets tossed out of standardized prototype status. I really don't know the answer for sure.

http://benefitslink.com/boards/index.php?showtopic=9640