Retroactive Amendment Making Mandatory Match Discretionary Match

[Guest 91smithie]

My 401(k) plan would like to change how it makes its matching formula from a mandatory match from a discretionary match. It would also like to change the plan year from a fiscal year to a calendar year. It would like to make the amendments effective as of October 1, 2001, though the amendments would not actually be adopted until about 1 month later. During the interim period, participants will receive the current matching contribution even though the match is now discretionary so that participants would not lose any monies (there would be no retroactive take-away). (My 401(k) plan matches as it goes along). Is it a problem to retroactively change a matching contribution as long as participants do not actually lose anything -- is that a 411(d)(6) issue? Also is it a problem to retroactively amend the plan year after the plan year has already started to make a short plan year -- I am desperate for any guidance on this issue.

[rcline46]

Matching problem - Effective date of change should be prospective, not retroactive. If your company is going to honor the match anyway, then there is no problem. In fact, since it is intended, why not do it NOW!

SHort year amendment should be done before the end of the short year. Otherwise there are some IRS rules which get triggered. It is normally done during the short year or possibly immediately prior to the beginning of the short year.

There should be a business reason to change years. Otherwise the IRS frowns on changing years to accelerate implementation of law changes.

[MWeddell]

I agree that the amendment cannot be adopted with a retroactive effective date.

Once any participant has satisfied the conditions for receiving an allocation of contributions, those conditions may not be changed. Treas. Reg. 1.411(d)-4, Q&A-1, esp. Q&A-1(d)(8).

If a plan has a trust or is subject to 412 funding rules, unless one obtains IRS approval, an amendment changing plan years must be adopted before the short plan year ends. Changing plan years to delay the effective date of legal provisions is not allowed, but changing plan years to accelerate the effective date of legal provisions appears okay to me. Rev. Proc. 87-27, Section 4.01.