Timing of purely discretionary amendments

[Guest JM123]

Can a discretionary amendment be implemented before it is adopted? For example, can a plan that does not currently permit lump sum distributions be amended to allow them before the plan is amended, so long as the amendment is adopted by the end of the plan year and made retroactively effective? (Assume no 436 issues).

[rcline46]

For discretionary amendments, I would say no. The amendment must be done before the 'action'. Also, it must be done before there are any 411(d)(6) issues.

[Guest JM123]

For discretionary amendments, I would say no. The amendment must be done before the 'action'. Also, it must be done before there are any 411(d)(6) issues.

I believe I found the answer. Section 5.05(2) of Rev Proc 2007-44 states that in the case of a discretionary amendment, an employer will be considered to have timely adopted the amendment if it is adopted by the end of the plan year in which the amendment is effective.

[John Feldt ERPA CPC QPA]

I think that's okay unless your making deferrals into a plan before the deferral option is adopted. Also, adding safe harbor to a profit sharing plan has some specific timing requirements (3 months minimum for its first year). I'm sure there's other examples like these where the last day of the year will not cut it.

[Trekker]

If, early in the year, you let an HCE take a lump sum (or a loan, hardship, etc.) that was previously not permitted under the Plan, and closer to the end of the Plan Year you amend and notify all other participants of this new feature, could raise some eyebrows.

Just sayin'.

[Guest Dressageho]

JM123 is correct re: Section 5.05(2) of Rev Proc 2007-44. It just needs to be adopted by the end of the year. Also, as long as the SMM is provided timely, I don't think you'll have too many raised eyebrows. The only time you might have a problem is if an HCE terminated and took a lump sum distribution and an NHCE terminated on or after that same date (but before the Amendment) and was not also offered the option of taking a lump sum distribution.