Compensation adjustment in mid year

[MLML]

Hi,

Profit Sharing only plan. 12/31 Plan Year End.

Allocation formula is new comparability where each individual is in its own

class.

There is no allocation condition to receive a profit sharing contribution.

The compensation used for the profit sharing allocation is full year

compensation.

There will be one new participant who will enter the plan as of 7/1/2016 (entry dates are 1/1 and 7/1).

Can I amend the Plan effective 1/1/2016 (retroactively) to change the

compensation used for the profit sharing allocation purpose? I'd like to

amend the plan to include the wording - Exclude compensation paid during

determination period while not a Participant.

Or, is this considered a cutback and therefore can only be amended for

future years? Maybe it is okay as long as the amendment is adopted before 7/1/2016?

I was thinking maybe it is a cutback because current document has no

allocation condition. However, the current formula is "each individual in

its own class", which means no one actually earned any right/benefit until

the individual percentage is determined by the employer.

Thank you for your help.

[Lou S.]

I believe you are OK if you amend prior to any employee entering the plan (in this case 7/1)

The one caveat I would have is if this is part of a safe harbor 401(k) Plan you might have a problem.

But if you are worried and everyone is in their own group why not just change "testing compensation" to compensation while a participant?

[MLML]

Lou S.,

Thank you. I think I am okay too as long as it is amended before 7/1. It is not a safe harbor plan, so that's good (profit sharing only plan).

Just to make sure I understand your last point, the client wants to minimize the contribution for this employee and that's the reason I need to amend the plan's compensation definition for the allocation purpose. Our document allows the compensation definition for the testing purpose to be either full year or partial year while a participant regardless of what definition is used for the allocation purpose.

Thanks!

[Bill Presson]

Would there be a testing issue if the ER just makes a smaller contribution? Assuming it's top heavy, you'll have to give at least a 6% contribution of the 7/1-12/31 comp anyway. But if everyone is in their own group, just give a lower percentage.

[BG5150]

If the test is passing at just gateway, lowering comp will lower allocation.

5% of $25,000 is less than 5% of $50k.

[Thanks, Captain Obvious!]

[MLML]

BG5150

You got it. It has been passing with 5% gateway for years.

Thanks.