Plan amendment - nondiscrimination issue?

[Belgarath]

I feel like my head is full of sand today.

A corporation is dissolving, and all employees, including the HC, will oficially terminate employment on September 30, which is one month prior to the plan year end. The plan will be terminated, with a plan termination date of 10/31/13 - the plan year end.

Plan currently has a 1000 hour/last day requirement. Since the HC owners will be terminating employment prior to the last day of the plan year, they want to amend the plan to provide only 1,000 hour allocation requirement, but no last day requirement. So far, so good.

Here's the question. They had one NHC with 1000 hours terminate in May, They don't want to give her a contribution, so they want to make the amendment effective June 1, 2013.

Am I imagining trouble where none exists, or is this going to be a discrimination problem? It will only affect 1 NHC adversely, and there are a total of 4 NHC, so even if a potential problem, should pass nondiscrimination testing?

Thoughts?

[BG5150]

How does an affective date of 6/1 get them off the hook?

Amend to groups, everyone in own group. Or those who terminated before 6/1 in a group and everyone else in another.

[david rigby]

Employment termination date is one thing. Plan termination date might be another. Not clear from your facts, just asking: it seems unlikely the plan termination can be later than corporate dissolution date.

[GMK]

^ because there would be no plan sponsor after the corporation dissolves, yes?

[ESOP Guy]

Why not just change the last day from 10/31 to 9/30? It seems to meet all the client's goals.

[Belgarath]

Oh, let's see...

BG - thinking was that making the amendment effective 6/1 would make it inapplicable to anyone who terminated prior to the amendment date.

David - why can't the termination date be after the corporation dissolves?

ESOP - they want to keep the full plan year to avoid pro-rating any limits, as they want a maximum contribution for the final year.

Thanks for all your responses!

[david rigby]

David - why can't the termination date be after the corporation dissolves?

Because any plan must have a plan sponsor.

Also possible that the plan terms will state that the dissolution of the employer will automatically terminate the plan.

[Belgarath]

Hi David - sorry to be dense, but I still don't understand. The employer, before dissolving, is going to do amendment/resolution to terminate the plan, establishing a termination date of 10/31/2013. The Plan Administrator/Trustee (which remain as such, in spite of the dissolution of the employer) will then wind up the plan termination, distribute assets, file 5500 forms, etc...

How is this any different than an unincorporated partnership that sponsors a plan having a partner leave mid-year, (maybe unexpectedly, maybe death, etc.) which legally dissolves the partnership entity. The plan is then terminated, but often at a much later date. Are you saying a plan termination date in such situation must be made effective retroactively?

And in this case, no, the plan language doesn't provide for automatic termination upon dissolution of the employer.

[BG5150]

BG - thinking was that making the amendment effective 6/1 would make it inapplicable to anyone who terminated prior to the amendment date.

Can you do that?

[david rigby]

Hi David - sorry to be dense, but I still don't understand. The employer, before dissolving, is going to do amendment/resolution to terminate the plan, establishing a termination date of 10/31/2013. The Plan Administrator/Trustee (which remain as such, in spite of the dissolution of the employer) will then wind up the plan termination, distribute assets, file 5500 forms, etc...

How is this any different than an unincorporated partnership that sponsors a plan having a partner leave mid-year, (maybe unexpectedly, maybe death, etc.) which legally dissolves the partnership entity. The plan is then terminated, but often at a much later date. Are you saying a plan termination date in such situation must be made effective retroactively?

And in this case, no, the plan language doesn't provide for automatic termination upon dissolution of the employer.

Just my hunch, but you should ask the plan's attorney: For example, on 08/31 you adopt a resolutiion to terminate the plan with a DOPT of 10/31, then on 09/30 the sponsor dissolves. Does the DOPT automatically become the dissolution date? Maybe. I don't know, and it might not make any difference, but it might also be something to get clarified.

[Calavera]

The timing of the amendment to avoid giving benefits to one NHCE may be considered discriminatory under 1.401(a)(4)-5.