Timing of amendment increasing deferrals

[Guest hyper]

Prototype plan amendment was executed September 15, 2003 to increase plan's elective deferral % from 5% to 70%, effective September 1, 2002, as permitted by EGTRRA.

Someone reveiwing the plan has pointed to reg 1.401(k)-(1)(a)(3)(ii) as requiring the plan be amended before any increase in deferral percentage can be implemented. This reg. generally says the deferral provision cannot be effective until the later of the date the provision is adopted or the date it is effective.

I have always interpreted this reg. to require the plan be adopted prior to deferrals, not to require an amendment before deferral increases.

Seems to me this interpretation is a particularly big problem for prototype plans that retroactively amended for EGTRRA. Not to mention seems to be contrary to the remedial amendment relief for EGTRRA.

Does anyone else think you must amend before permitting increased deferrals, regardless of any other relief that may be out there ?

[WDIK]

Since the brighter minds on the board have not responded I will share a thought, although it may be summarily rebutted and/or dismissed.

I think that the ability to increase the deferral percentage allowed under a 401(k) plan was merely a by-product of some of the provisions of EGTRRA (i.e. the increase in annual additions limit and the exclusion of deferrals for deduction limitations), not a provision in and of itself. Therefore, it would seem that the "retroactive" nature of the good faith EGTRRA amendment is not applicable to this situation.

[Bird]

I agree with WDIK. I seem to remember scrambling to get EGTRRA amendments in place so that we could take advantage of the higher limits in situations similar to the once described.

[g8r]

But....one could argue that this is "integrally" related to EGTRRA and therefore falls w/in the scope of EGTRRA good-faith amendments.