Retroactive Amendment?

[Guest notapensiongeek]

We are working on a 2008 calendar year Cross-Tested 401(k) Profit Sharing Plan with a 3% Safe Harbor non-elective contribution (group of physicians with several support people). Two rate groups: physicians and non-physicians. The client didn't realize that an older (non-physician) NHCE paid just under the HCE comp thresshold would meet the plan's eligiblity requirement (1 YOS / age 21) and enter the plan during 2008. So when running the non-discrimination test this person must receive a ridiculous allocation (like 50% of pay) to pass the test to support the contributions already funded and allocated to the physicians.

Is it ok to amend the plan retroactively and bring in the 2 employees that have not met the plan's eligiblity requirements, that were hired, say, prior to 7/2/2007 in order to pass the test? At first glance it appears to be non-discriminatory as we're not picking a specific (otherwise) ineligible employee due to age, vesting, etc. but we are applying the rule across the board for anyone hired on or before the specific date (and there are only 2 of them - everyone else is already in the plan except for those hired after 7/2/2007). If this is ok, what about these 2 employees' eligiblity to make 401(k) deferrals in the past and in the future? Let's say they never will meet the plan's eligiblity requirements? Any other issues I need to be aware of?

Any input would be greatly appreciated!

Thanks!!

[Kevin C]

One of the requirements for an -11(g) amendment is that it can't reduce anyone's accrued benefit. Your first step is to check the plan language to see what it says about the allocation. Some documents say that the new comparability allocation must satisfy 401(a)(4) and other documents do not. Depending on what the document says, you may or may not be able to amend retroactively to give that older NHCE a smaller allocation.

Here is a prior thread on -11(g) amendments.

http://benefitslink.com/boards/index.php?showtopic=42002

[BG5150]

And if you can add them for the Profit Sharing, I see no reason why you couldn't add them just for the Profit Sharing and keep the other sources' eligibility the same.