Amending a STandardized Plan

[austin3515]

When can I amend the allocation methods of a standardized plan? Before anyone works 500 hours or before the first day of the plan year?

[Guest Eric A]

I would say before anyone works 500 hours. I think it's IRS TAM 9735001 which stands for the proposition that an amendment to an allocation formula isn't a 411(d)(6) violation if it is adopted before the participant has satisfied the conditions for receiving an allocation (i.e. working 500 hours).

[John Feldt ERPA CPC QPA]

So you're saying that the formula for the active employees, even when the plan imposes no hours requirement for their allocation at the end of the year, can be changed during the year as long as they do not yet have 500 hours?

Here's the TAM that was referenced:

http://benefitslink.com/IRS/tam9735001.html

[Guest Eric A]

If the plan imposes no hours of service requirement in order to receive an allocation, then the answer is different. In that case, the allocation formula must be amended before the beginning of the plan year.

I was under the (mistaken?) assumption that the plan in question imposed a 500 hour of service requirement.

[austin3515]

I mentioned it was standardized, which I meant to imply that there is no hours requirement for actives, but a 500 hour requirement for terms.

Because you do need to be employed on the last day of the Plan Year to get a contribution UNLESS you work 500 hours, it does seem to me that no one has earned an allocation until they have worked 500 hours.

In other words, there is only a last day rule for people who work less than 500 hours. Therefore, once you work 500 hours, the last day rule is removed, and you have accrued a right to an allocation. The application is similar to a regular last day rule where the allocation condition is not satisfied until you work on the last day of the plan year.

I think I feel pretty good about this... But please disagree with me if you feel like it...

[12AX7]

We do the same as Austin, although I have heard it argued and have seen amendments done after the 500 hour mark because those proponents claim the benefit is not accrued until the last day of the plan year under all circumstances.