Top Paid Group

[austin3515]

Plan uses TPG as of 12/31/2011. Plan uses PY Testing. There is an employee who made more than $110K in 2010, who is not an HCE in 2011 due to TPG. However, the Plan uses PY Testing./

If I repeal the TPG for 2012, will that allow me to reclassify the employee as an HCE in 2011? The person made no 401k so it would help my testing (i.e., as an NHCE with zero, it's dragging down my testing).

[Tom Poje]

all we know for sure is you are talking about a discretionary amendment - and those must be in place before the end of the plan year.

but since the HCE definition depends on the 'prior year' just exactly how is the discretionary amendment rule to apply?

I know at some conferences IRS officials voiced an opinion any such amendment really should be in place by the end of the prior year, but there has never been any firm answer I know. about as close as I've seen, from the 2008 conference #37, and it really doesn't apply in your case, but might provide an idea to the IRS reasoning. (This particular case involved 2 plans, one was top paid group, the other was not)

"Yes, you need to amend the plans so that they are consistent. You may have to do it before participants accrue benefits or contributions to avoid a 411(d)(6) cutback caused by your amendment. if your amendment made someone an HCE who was not previously, and that person will get a smaller contribution allocation as a result, that would be a cutback."

[Bird]

I agree with Tom - definitely before the end of the year, and when during the year is a 411(d)(6) issue. I'd argue/think that no one has earned a particular QNEC at this moment and you can amend. (Unless your plan has specific language that QNECs are required, or something else that I think is unusual.)

[MWeddell]

While it isn't entirely clear, I believe the amendment is still timely.

Rev. Proc. 2007-44 establishes the deadline for discretionary amendments as no later than the last day of the plan year in which the amendment is effective. This amendment is effective for purposes of performing the discrimination testing for the 2012 plan year and defines who is a highly compensated employee for purposes of the 2012 testing. Even though it refers back to 2011 compensation, I think the amendment is still timely.

[BG5150]

Just a thought: does the ER have any other plans TPG might affect? Remember, this is an employer-wide decision, not just a plan decision.

(Isn't it?)