Retroactive addition of profit sharing contribution

[7806akp]

Plan sponsor would like to make a profit sharing contribution now (during 2012 but before due date for filing corporation's income taxes for 2011) related to the 2011 plan year. Can the plan be amended retroactively to allow for profit sharing contributions for 2011? Discretionary amendments are supposed to be made by the end of the plan year in which the change was implemented, but in this case, it is an amendment that is favorable to participants, and the amendment would be adopted by the due date for filing the corporation's income taxes.

[rcline46]

Most, but not all, plans allow for discretionary contributions. Make sure your document does not allow for it.

If it truly only permits elective deferrals then only an amendment using the rules under 1.401(a)(4)-11(g) could create 'space' for a contribution for 2011. Note that the IRS has opined that any contribution under this provision has to be deducted in the year of the amendment, in this case 2012.

[7806akp]

Most, but not all, plans allow for discretionary contributions. Make sure your document does not allow for it.

If it truly only permits elective deferrals then only an amendment using the rules under 1.401(a)(4)-11(g) could create 'space' for a contribution for 2011. Note that the IRS has opined that any contribution under this provision has to be deducted in the year of the amendment, in this case 2012.

The plan definitely does not provide for nonelective contributions. So, are you saying that a contribution can only be added for 2011 if it is being added to correct a discrimination issue under the plan?

[rcline46]

Why does everyone think a -11(g) amendment is ONLY for corrections? That is not true. However, it does have other consequences.

[Tom Poje]

well, I suppose if the plan was top heavy,and since the document has to have top heavy language you could be forced in certain cases to provide a nonelective even if the document didn't permit nonelectives, but that's an exception to the rule.

[7806akp]

Why does everyone think a -11(g) amendment is ONLY for corrections? That is not true. However, it does have other consequences.

I guess I thought that because the title of the reg is "Corrective Amendments" and the reg refers to the "scope of corrective amendments" and appears to only discuss amendments for correction purposes. How else can an 11(g) amendment be used?

[Kevin C]

You should read through TAM 9735001. It deals with an attempted amendment after the end of the plan year but before the due date for the employer's tax return. The conclusion is that participants' accrued benefits as of the last day of the plan year include their share of the contribution for the year allocated under the existing plan provisions. The amendment in the TAM reduced some participants' allocations and resulted in a 411(d)(6) violation.