Corrective Amendment for failed 401a4

[Guest chris4013]

Please let me know if my thought process is correct:

I was considerring writing in 5% as Group B's allocation in the plan document, with the understanding that it would probably fail 401a4 in future years. I believe that by writing the formula into the document I can avoid bumping up group B into a higher percent, and hand pick individuals to bump up to receive the higher allocation by making a corrective amendment after the plan year of allocation.

[AndyH]

I think you can do what you suggest but I think it is abusive and advise against it.

[Guest chris4013]

Writing it in would require that I make the contribution each year, correct? Anyway out of it?

[Mike Preston]

Sorry, Andy, but I don't think it is abusive at all.

There is no difference between that and just having the percentage undefined and then following up a contribution for the year with an -11g amendment.

[AndyH]

Mike, if I understand your opinion on this, then I think that it has changed in the last 2 years. There is a prohibition somewhere in the a(4) regs (I have not looked it up today) to reliance upon a repeated pattern of 11-(g) corrective amendments within the context of B, R, F which we discussed here a couple of years ago and my recollection is that you stated that you tended to interpret that prohibition more broadly than just B, R, F. But even Bill Parcells reserves the right to change his mind!

But chris4013, if you are forced to choose between my opinion and Mike's, .............don't choose mine!

[Mike Preston]

I agree with you that the focus of the repeated amendments issue has been narrowed. I seem to recall that the issue was broached and that the IRS held the opinion at a conference or two that the issue was more broad than merely BR&F. But it was pointed out here that issue is clearly limited to BR&F and that has been my opinion since at least that date! If that is a change, so be it.

Bottom line is that, for now anyway, the focus appears to be clearly limited to BR&F. So, if a plan is designed in such a way that it is anticipated an amendment will be required each year in order to satisfy amounts testing under -2 or -3, that appears to be ok.