Plan year amended to calendar year, after the calendar year started

[Jean]

A prototype 401k plan is amended from a fiscal year ending 8/30/00 to a calendar year beginning 01/01/01. The amendment is not signed until 3/01. Is this ok? The only references are 1.401(a)(4)-5, but this change is not specifically referenced.

[Guest Bud]

I think it’s ok, as long as there is no reduction in protected benefits and all deadlines that relate to the 12/31/00 plan year end are met. 9/1/00 to 12/31/00 is a short plan year.

[Guest jdw]

This is not ok. See Rev. Proc. 87-27, which allows plan year changes without IRS approval only if certain conditions are met. One of the conditions is all actions necessary to implement the change (including adopting the plan amendment) are taken before the end of the short year (see section 4.01(6)). That did not happen; the amendment was not adopted until three months after the short period.

Since you do not qualify for automatic approval, you need to file form 5308 with the IRS and explain why the amendment was not timely signed.