Retroactive Amendments

[ERISA-Bubs]

We have a new plan that allows individuals to defer base pay and bonus. The company has two divisions, employees from both divisions participate. Because payroll is processed differently in the different divisions, under division 1 commission was deferred as bonus. Under division 2, it was not deferred. Division 2 employees have complained that they thought they deferred commissions by deferring base pay.

We want to amend the plan for this year so that division 1 commissions are deferred as bonus and division 2 commissions are deferred as base. We think an amendment is necessary if we're going to treat commissions differently for the divisions.

Here's the question -- can we make that amendment today so that it is retroactive to 1/1/2012?

What is the alternative? To treat commission the same at each division (this would cause us a lot of trouble with division 2 employees)? Can we make an amendment the is prospective only (in which case, what do we do with the commission that wasn't deferred so far)?

The regulations provide the following, which makes me think we can do this retroactive. Section 1.409A-1©(3), the written plan requirement:

"Notwithstanding the foregoing, a plan will be deemed to be established as of the date the participant obtains a legally binding right to a deferral of compensation, provided that the plan is otherwise established under the rules of this paragraph ©(3)(i) by the end of the taxable year of the service provider in which the legally binding right arises, or with respect to an amount not payable in the year immediately following the taxable year of the service provider in which the legally binding right arises (the subsequent year), the 15th day of the third month of the subsequent year. "

[QDROphile]

The language you quote will not help you. You have a problem that relates primarily to timing of deferral elections, not establishment of the plan. I don't think you can say that a plan has not been established if deferral elections were submitted with the intent that they be given effect. You do not have license to reset the plan and change any deferral elections for 2012. You might consider what you can accomplish with a correction under 2008-113.