Amending for $200,000 retroactively in a future year-issues?

[AndyH]

The sponsor of a general tested plan, actually a DB/DC combo, may wish to defer applying the EGTRRA comp limit increase retroactively for now due to the cost being too much to handle along with the other stuff, such as poor asset performance.

What are the issues if in the future if it is amended, for example, in 2004 to apply the $200,000 retroactively?

I've read comments about a plan no longer being a safe harbor, but it is not now, so that would not appear to be a problem.

There could be an issue of past service credit exceeding 5 years, but I can't see how that could be a problem if the only people over the comp limit are HCEs.

Clearly there will be testing issues if the annual method is used, but that is quantifyable.

Are there any other pitfalls to be considered?

[Guest merlin]

Andy,if you adopt the EGTRRA comp limit now (which I think means within the GUST remedial amendment period) the benefit increase does not have to be tested for a4. If you adopt later,you'll have to test it.

But you're right about increasing liabilities in plans whose funded status is marginal at best. If it's a small plan with 1 owner and the plan terminates before the assets have recovered ,so what? You've only increased the amount the owner wasn't going to get anyway. But if you've got a larger plan with some HCEs who want to terminate or retire,they can't get their benefit without restriction. That could be a difficult conversation.It's a plan-by-plan call.On the upside,you can probably use the 120% RPA rate in doing the 110% residual asset test.

[AndyH]

Thanks for the comments, Merlin.

In my situation, the plan must be general tested anyway, so if avoiding (a)(4) testing is the most compelling reason to amend for EGTRRA retroactively now, I don't see that doing me any good.

This plan has about 40 participants, and with the stock market tanking, together with the new (up to current liability) deduction rules, and the application of EGTRRA prospectively, the contribution is through the roof anyway, so I'd prefer to avoid retroactive application of the $200,000 limit as long as I'm not permanently forgoing an opportunity.

The formula happens to a creative Ed Burrows design, equal to a percentage multiplied by compensation per year, kind of like an annual accrual plan, so applying EGTRRA retroactively has a huge impact on the contribution.