mid-year change from sal ratio to allocation groups

[Earl]

If I take over a December year end plan today (November), can I change to "each in own" from "salary ratio" for this year?

All the participants have met the 500 hours requirement but does that entitle them to the allocation method when they met the 500 hrs requirement or just an allocation?

Thanks

[Bill Presson]

If I take over a December year end plan today (November), can I change to "each in own" from "salary ratio" for this year?

All the participants have met the 500 hours requirement but does that entitle them to the allocation method when they met the 500 hrs requirement or just an allocation?

Thanks

In my opinion, you have to wait until next year and I think most people will agree with that. Once a participant has met the allocation requirement, you can't change the allocation.

[Earl]

If there is also a "last day" requirement would it be OK?

thank you

[ETA Consulting LLC]

Earl,

You have to determine if there are participants who have already met the accrual requirements during the year. Fact patterns are important. Does the document say you must be employed on the last day in addition to working more than 500 hours? Does the document say you must work more than 500 hours OR be employed on the last day of the year?

You see how different these two scenarios are. Your fact pattern doesn't give the information necessary to make that determination.

Good Luck!

[Bird]

Odds are if there is a 501 hours requirement it is combined with an "or" if employed on the last day of the year (and therefore participants have accrued the right to allocations under the old formula), but you'll have to make that determination.

There is a solution; it may or may not be attractive: you can create a brand-new profit sharing plan with the desired formula for this year, then merge the plans as of 1/1/12.

[Earl]

Initially I was focused on the issue of accruing the right to an allocation method. So I was not clear and complete on the plan specs.

The document actually says if employed on the last day get a contribution regardless of hours. If terminated, must work more than 500 hours.

So this case is clear.

Starting a second plan (I would be restating anyway) is a good idea. It will make the transition from the payroll provider's plan easier, I think, regardless of the accrual issues.

Thank you

[shERPA]

Most of us are aware of the IRS opinion that an allocation method cannot be changed once the criteria for allocation are satisfied, but have they issued any formal written guidance on this? I recall RR 79-237 that allowed an MP to be amended prior the the allocation date regardless of 1,000 hours or last day requirement, which is sort of on point. Any other written guidance on this?

[ak2ary]

Technical Advice Memorandum 9735001 says that you cannot amend the allocation formula in a Profit Sharing Plan once any participant has satisfied the requirements to share in the allocation