changing def of plan compensation

[Earl]

PS Plan with last day accrual requirement.

Can I change plan now (in November 2004 but pre-12/31/04) to change the definition of compensation to be period of participation rather than full year (not for TH, just for any additional).

I think there is no accrual of anything until 12/31 so it si ok. But I am getting an argument...

Thanks

Earl

[JanetM]

If you have last day rule then no one accrues a benefit until last day. Since you would not be reducing something they have already accrued you can amend anytime up to 12/31/04 and be effective as of 1/1/04.

[Belgarath]

FWIW (This affirms what JanetM just told you)

The following question and answer were from the IRS Q&A Session at the 2003 ASPPA Annual Conference:

A profit sharing plan provides that each eligible participant who is credited with 1,000 hours of service and who is employed on the last day of the plan year is entitled to receive an allocated share of the discretionary employer contribution. The plan sponsor intends to amend the plan to change the allocation formula, and the amendment could result in smaller allocations for some participants. To avoid any potential violation of the anti-cutback requirements, when should the amendment be adopted?

a. Before any participant is credited with 1,000 hours of service?

b. Before the last day of the plan year?

c. Before the employer contribution is actually deposited to the plan?

d. Within 2½ months after the end of the plan year?

Response: In Technical Advice Memorandum (TAM) 9735001, issued on August 29, 1997, it was concluded that a participant’s right to an allocation is protected under Code section 411(d)(6) once the participant has satisfied all of the conditions necessary to receive the allocation. Therefore, the plan amendment would have to be adopted prior to the time that the participant satisfies the conditions necessary to receive the allocation. In this example, because the participant must be employed on the last day of the plan year to receive an allocation, the amendment could be adopted anytime prior to the last day of the plan year.

[Earl]

Thanks to both of you.

It is appreciated.