Amendment for PS

[jmartin]

A law firm has a plan with a 1 year (1,000 hr) service requirement for profit sharing. Entry is monthly. They hired a new attorney 12/15/13. She satisfied the requirements 12/15/14. She would enter the plan for PS purposes on 1/1/15.

Unfortunately they told her she would get PS in 2014. Since she is a nhce for 2014 (may be a HCE in 2015, not sure since they use top 20), can the plan be amendment bringing her specifically in the plan by name for ps purposes? I know they could have in December 2014 for sure but was unsure since it is 2015.

[John Feldt ERPA CPC QPA]

NHCE? Seems okay under -11(g).

[QDROphile]

I have always operated under the limitation that a discretionary expansion of plan terms for contributions must be done by amendment not later than the end of the year to be effective for the year.

[jmartin]

Any other opinions? She is definitely a NHCE. Let's add another scenario: The plan has 4 allocation groups. Group 1 is the top level partners. Group 2 is mid level partners. Group 3 is remaining partners and staff. Group 4 is any nhce required to get a contribution to pass rate group testing.

Could this nhce be amended into group IV to get a contribution?

[jpod]

I am with QDRO on this one. And in my experience situations like this are usually readily cured by saying "we're sorry, we can't do it, but we will give you $X cash instead." If there is a vesting schedule, you can commit to deferred compensation that becomes vested and payable commensurate with the plan's vesting schedule.

[John Feldt ERPA CPC QPA]

If you need to amend the plan under 1.401(a)(4)-11(g) to bring in one or more NHCEs for the nonelective, retroactively for the prior plan year, the regulations allow you to do so up until 9.5 months after the end of that plan year.

[QDROphile]

The proposition does not sound to me like a complince amendment under -11(g). It appears to be an elective amendment to expend contributions beyond what the plan provides. It is too late for a contribution for 2014.

[John Feldt ERPA CPC QPA]

I'm sure a test could be run that shows a failure, and then be shown such that adding that one individual makes that specific type of test pass.

That said, I really think it's a bad idea to design certain plan features around one person, for example a client that adds a provision because one employee now "needs this". So, from a philisophical standpoint, I totally agree with QDRO and jpod. Maybe even more so if you're talking about a larger plan.

For some very small employers, getting a benefit in the plan to this one employee could be big deal to the employer-employee relationship, especially if verbal promises were made and the employer wants to maintain their full trust. The regulation is not written to say that the plan, after having exhausted all possible testing scenarios, does not pass, so again, I believe -11(g) is available.