Retroactively amend compensation definition

[Guest Iwonder]

Is it ever permissible to amend, MID-YEAR, the definition of compensation to exclude fringe benefits

[ERISAnut]

Sure, but only with respect to the compensation that hasn't been received yet. As a general rule, you can always amend prospectively without violating the cutback rules.

Just be sure that the impact of the amendment is also nondiscriminatory. Cannot get into the long list of items that can run afoul by poor amendment timing during the year, but the client (and counsel) should think along those lines as well.

[Guest Iwonder]

Sure, but only with respect to the compensation that hasn't been received yet. As a general rule, you can always amend prospectively without violating the cutback rules.

Just be sure that the impact of the amendment is also nondiscriminatory. Cannot get into the long list of items that can run afoul by poor amendment timing during the year, but the client (and counsel) should think along those lines as well.

Thank you ERISAnut!!!

[Guest mjb]

The defintion of comp or other terms can be made retroactively to the beginning of the plan yr where there is no reduction of accrued benefits as of the date of the change because IRS permits discretionry plan amendments up to the end of the year. For example, if DC plan has a last day of the year requirement for benefit accrual then the comp defintion can be changed during the year effective as of the first day of the plan year because there has been no accrual as of mid yr. The comp def. cant be changed retroactively mid yr to reduce accrued benefits, e.g., if matching contributions are contributed monthly, cant change comp def in July back to Jan 1. Of course the change must meet requirements for 414s.

[jim241]

Is it a cutback if the change in compensation results in an increase in benefits? For example, removing exclusions that allows for additional comp to be included in the definition, causing increase in match, PS, non-elective. 

[MWeddell]

I agree with mjb but note that many DC plans with a last day of the plan year requirement also have exceptions for those who die, become disabled, or "retire" (however it's defined) during the plan year. 

[MWeddell]

On ‎4‎/‎17‎/‎2018 at 2:56 PM, jim241 said:

Is it a cutback if the change in compensation results in an increase in benefits? For example, removing exclusions that allows for additional comp to be included in the definition, causing increase in match, PS, non-elective. 

It depends.

Suppose a profit sharing contribution has no allocation conditions and you want to amend the compensation definition retroactive to the first day of the plan year.  For example, if the plan says that profit sharing contributions shall be 3% of compensation, then it's not a cutback.  On the other hand, if the plan says that profit sharing contributions shall be a discretionary amount allocated in proportion to each eligible employee's compensation, then removing exclusions will be a cutback for some participants because it will lower their allocation percentages. 

[Tom Poje]

e.g. lets say you were going to allocate 10,000

2 participants, owner at 180,000 , NHCE at 50000

you amend, owner is now at 250,000 at NHCE is still at 50000

so you have increased the HCE contribution and cut back the NHCE, assuming that they have already  attained the necessary conditions (hours, etc) to receive a contribution