Allocations based on hours worked in prior plan year

[dmb]

Employer would like to amend the employer base allocation of profit sharing plan so the current year allocation is based on whether or not a participant worked 1000 hours in the prior year. The allocation is flat 4% of comp. The purpose is so contributions can be made on a pay period basis of the current year. No other requirements for allocation other than meeting initial plan eligibility which is 3 months of service. Would this amendment result in the allocation being considered non-uniform and therefore need general testing under 410(b) and 401(a)(4) or could it be treated as a provision like a last day requirement and therefore only be subject to basic 70% coverage testing under 410(b)? Thanks.

[My 2 cents]

So if the person works 1,000 hours in 2015 and separates from service in March 2016, how do you make sure that they get a full year's allocation? How well would it work if the period during which the service is earned and the period during which the allocation is made don't coincide?

[00hskrgrl]

Anyone who completes 1,000 hours in the plan year is entitled to share in the allocation for that plan year. What the client is proposing could potentially result in an employee who didn't complete 1000 hours in the prior year but did in the current year not getting a share of the contribution, which would be impermissible. You might want to take a look at IRC 411(b) and applicable Treas. Reg., as well as DOL reg. 29 CFR 2530.200b-1b.