corrective plan amendment

[Gary]

A profit sharing 401k plan requires 1000 hours and last day for an allocation

in order pass a4 they want to give an allocation to an employee with less than 1000 hours and to another employee with less than 500 hours.

i recommended to 401k consultant to prepare an 11g corrective amendment.

consultant says that plan provides fail safe provision only if employee has at least 500 hours.

i looked at plan fail safe provision and saw a section that does not require 500 hours.

Questions.

1. the description of fail-safe allocation only references 410b. so does this mean that it doesnt even apply for an a4 allocation?

2. if it does apply then would consultant's comment be correct?

3. and if it does apply, does fact that there is a section that apparently does not require 500 hours enable such a corrective amendment to employee w less than 500 hours?

thanks much

[ETA Consulting LLC]

Questions.

1. the description of fail-safe allocation only references 410b. so does this mean that it doesnt even apply for an a4 allocation?

2. if it does apply then would consultant's comment be correct?

3. and if it does apply, does fact that there is a section that apparently does not require 500 hours enable such a corrective amendment to employee w less than 500 hours?

thanks much

410(b) is "one" of the tests that must be passed in order for the plan to be non-discriminatory under 401(a)(4). You must either pass the coverage ratio test or (the non-discriminatory classification test and the average benefits test). These are 410(b) issues. Now, when passing the coverage ratio test, may test on "contributions or benefits" per 401(a)(4), but you must still pass that test.

That the fail-safe (if it applies) does is brings other employees into the allocation formula by eliminating the accrual requirements for them. This, now, makes them 'benefit' under the formula and precludes you from having to perform more advanced testing. Without such fail safe, you'd need some provisions to bring other employees in (otherwise any attempt to allocate a contribution to them would be made outside the written terms of the plan). This is where the 11-g amendment comes into play, because there isn't plan language allowing entry of additional employees to pass the tests.

Good Luck!

[Gary]

the plan meets ratio coverage already, so giving allocations to these employees is just to pass a4. these employees are already participants, they just didnt have enough hours for 2011.

perhaps this changes things a bit.

i will look into situation further too.

thanks

[PensionPro]

the plan meets ratio coverage already, so giving allocations to these employees is just to pass a4. these employees are already participants, they just didnt have enough hours for 2011.

perhaps this changes things a bit.

i will look into situation further too.

thanks

If plan passes 410(b) it does not invoke 410(b) failsafe. May want to check with consultant how 410(b) failsafe applies to 401(a)(4) failure.