Profit Sharing and the Last Day Rule

[Logan401]

My question pertains to the ability to amend a profit sharing formula if the plan has the last day rule requirement.

Suppose the last day rule requirement is in place.

I understand that you can amend the allocation method prior to the last day of the plan year.

However, can you amend the method to New Comparability?

I thought that the allocation groups have to be stated in the adoption agreement prior to the beginning of a plan year.

Please correct me if I am wrong!

Thank you

[MWeddell]

Yes, you can amend the profit-sharing allocation formula, including changing it completely to a new comparability formula, any time before the allocation conditions are satisfied. For a plan that requires employment on the last day of the plan year (with no exceptions for those who die, retire or become disabled during the plan year), then you can amend the plan on the penultimate day of the plan year.

[Logan401]

What about the allocation groups being definitely determinable prior to the beginning of the plan year.

Does that have any bearing at all when it comes to amending for New Comp?

[MWeddell]

It is a worthy question, but the IRS decided a long time ago (circa 1994 in some very informal guidance) that it was going to allow allocation groups as small as one participant per group and it still would be a definite allocation formula. I think you have to communicate to the trustee who is in each group.

Collect other opinions though because I don't work on many new comparability plans.