Rights to allocation

[dmb]

New Comparability calendar year plan has two allocation groups, each with an allocation % defined in the plan document. No hours requirement or last day rule to receive an allocation, basically if you work an hour of service you're entitled to an allocation. Employer would like to amend plan to remove the fixed allocation percentages and make contribution amount discretionary and only provide defined contribution amounts up to the plan amendment effective date. Can this be done during the plan year? It has been my understanding that once a participant meets the requirements for an annual allocation he/she must receive the allocation amount in the document at that time. Thanks.

[WDIK]

It has been my understanding that once a participant meets the requirements for an annual allocation he/she must receive the allocation amount in the document at that time.

That is my understanding as well.

[Blinky the 3-eyed Fish]

It's a 411(d)(6) issue. If the allocation percentages are hard-coded in the document, then only the contributions accrued on compensation through the date of the amendment are what need to be preserved. After all that is all that has been earned by the participants.

The idea that the contribution formula can't be changed during the year stems from situations where there is a discretionary contribution, which is not the case here.

[AndyH]

And even if the allocation were discretionary, some would argue that once again only comp through the amendment date must be treated in the original manner.

One thing about the fixed contribution - consider whether a 204(h) notice might be needed if you change it.

[dmb]

Thanks for all responses.