Time Limitations for 410b Amnd?

[Zorro1k]

Is an amendment to correct for a failure under 410b required to amend the plan for the plan year in which the plan failed or can it extend to future years? The failure in the instant case was with respect to excluded classes and hour requirements. Thanks.

[Zorro1k]

For 401 failures I don't see a limitation and I see guidance that repeated amendments are not preferred. I also see that those regulations that apply to 401 are generally applicable to 410 failures as well.

[Tom Poje]

yes, an the deadline is 1.401(a)(4)-11(g)(3)(iv) 15th day of the 10th month following close of plan year

e.g. Oct 15 for a calendar year plan.

otherwise you have to use VCP

[Zorro1k]

I understand that the plan must be amended by that date. I'm wondering if a plan fails in 2014. Is the corrective amendment limited to 2014 only or can it be amended for 2014 and 2015 (the plan will be restated in 2016). I don't see anything prohibiting that but I don't know if anyone else has a different opinion.

[Lou S.]

there is no reason why you can't have a corrective amendment for 2014 also apply for 2015. simply have the amendment drafted to apply to 2014 & 2015 plan years.

[Zorro1k]

What if the plan is a safe harbor plan? The failure for 2014 would be a corrective amendment but the failure for 2015 would be a mid year amendment since there is not failure yet, would it not?

[Lou S.]

good point I hadn't thought of that, I suppose some mid0year amendments could be problematic in that case. Though the OP does not mention if it is a SH plan or not.

[austin3515]

I fall back on the rule of thumb Sal Tripodi sets forth in the EOB. Imagine the public policy position of disallowing an amendment that expands coverage. It's ridiculous. So Employer A excludes Class B from the Plan, but desires to provide Class B with retirement benefits. IRS disqualifies the Plan or penalizes Employer A merely for providing retirement benefits to a class of people it was previously denying such benefits. It is too hard to imagine even for the IRS. According to Sal, disallowing such an amendment that so clearly contradicts established public policy is "ridiculous" (I think in one version of his book he actually uses the word ridiculous).

[Kevin C]

A couple of Q&A items from the 2012 ASPPA Annual Conference DC Q&A session are relevant to this discussion if it involves a SH plan.

#39 - SH 401(k) fails 410(b). Question is does the -11(g) amendment to correct the 410(b) failure violate the mid-year amendment prohibition for the year the amendment is adopted? Answer is no and the IRS agreed.

#37 - SH 401(k) that only covers salaried employees. Question is can they amend mid-year to make hourly employees eligible? IRS answer is yes, provided the amendment doesn't adversely affect those already eligible.

I'll also point out that there are no rules in 1.401(k)-3 or 1.401(m)-3 that apply to plan eligibility requirements. The SH mid-year amendment prohibition applies to provisions that satisfy rules in those sections.

So, even if it is a SH plan, you should be safe in making the amendment be effective for both 2014 and 2015. However, you may not want to have it effective for 2015 if the plan will pass 410(b) for 2015 without the amendment. Amending now to retroactively bring in previously excluded employees means that they become improperly excluded for that retroactive period. The correction for that is for the employer to make a corrective deposit. Why do a correction for 2015 unless you have to?

[Zorro1k]

Thanks for that. Where can I find the Q&A you referenced online?

[Tom Poje]

if it was a safe harbor match I don't think it could be done because that would be prefunded a match which the IRS has said is taboo. or at least that is what I recall.

[Zorro1k]

It is SH profit sharing.

[Kevin C]

Zorro, I don't think the ASPPA Q&A sessions are available freely on-line. Your best bet will be to find someone you know who attended the 2012 conference.

Tom, I don't follow you. We were discussing retroactively adding people to a plan to pass 410(b). How would the pre-funding restriction on matching contributions apply to that?

[Tom Poje]

Kevin:

The question came up could you also amend for 2015 and I was assuming that meant they wanted to put in a corrective amendment at this time to include 2015. I read that as saying "can I toss in additional amounts for 2015 pretty much as a just in case" - but if you do fail 410b in 2015 then that implies you are bringing in people who couldn't defer , and it that case I would say that is pre funding the match because deferrals haven't even been made yet. I'd be a bit hesitant about even assuming such a failure before it happens.

[Kevin C]

Tom, I agree with you about not "correcting" for 2015 unless it is really needed.

As for prefunding, I don't agree. The rule is:

1.401(m)-1(a)(2)(iii)Employer contributions not on account of an employee contribution or elective deferral

(A)General rule.—Employer contributions are not matching contributions made on account of elective deferrals if they are contributed before the cash or deferred election is made or before the employees' performance of services with respect to which the elective deferrals are made (or when the cash that is subject to the cash or deferred elections would be currently available, if earlier). In addition, an employer contribution is not a matching contribution made on account of an employee contribution if it is contributed before the employee contribution.

I'll note that the employee contribution mentioned in the cite is after-tax contributions, not deferrals.

I still don't understand where you are going with your thought about pre-funding. The corrective amendment makes affected employees participants retroactively, which means they are retroactively improperly excluded from participation. There will not be any actual deferrals deposited for them for the period from the retroactive entry date to the date of the amendment since they were not allowed to participate during that period and nothing was withheld from their paychecks. That improper exclusion needs to be corrected, which normally happens under EPCRS. The cite above does say the match can not be deposited before the deferral election has been made. There is a similar rule for deferrals. That may be why EPCRS calls the corrective deposit a QNEC. If EPCRS didn't have a way around the regs requirement that the deferral and match deposits don't precede the deferral election you would never be able to correct the improper exclusion of a participant from a 401(k) plan. Am I missing something?