Top Paid Group Election

[cpc0506]

Can anyone provide guidance here?

I have a client who is failing the ADP Test using 6 months data. The plan does not limit the Top Paid Group to the top 20%. If I make the change to the top 20%, the ADP Test passes.

Is changing the Top Paid election considered a discretionary amendment? If so, I can amend the plan to limit the top paid group to the top 20% so long as the client adopts the amendment by 12/31/2009. Is my thinking correct?

[rcline46]

Confirmed. You are correct. Note if using prior year testing you need to re-run the prior year also using the TPG.

[MWeddell]

Yes. I assume you are talking about a plan with a calendar plan year and the amendment is effective for the 2009 plan year.

[Bird]

I agree, but just because we don't like to have any clear answers in this business, will throw this out - at some point, and no I don't have a cite, some IRS official mumbled that this could create a 411(d)(6) cutback. So if you change someone from an NHCE to an HCE and they wind up not getting a QNEC as a result, that's a cutback, possibly prohibited depending on when they earned the right to that contribution. I don't think it would even potentially apply unless QNECs were the only correction method, and I don't know how you determine when the right to a QNEC is earned.

It doesn't bother me but if you want to have something to worry about, there it is.

[K2retire]

The Erisa Outline Book also points out a possible cutback issue if your profit sharing formula has different contribution rates for HCEs and NHCEs.