Retroactive Increase Employer Contributions

[AFJ]

Can an employer retroactively increase their employer contribution formula? If so, what is the allowable time period to do so? Could the retroactive increase be applied as many as 24 months ago?

[Kevin C]

Welcome to Benefitslink.

Reg 1.401(a)(4)-11(g) allows retroactive amendments to increase benefits, provided they meet certain conditions. Depending on the amendment and the situation, you may or may not be able to amend under -11(g).  One of the requirements is a timing restriction on when the amendment can be adopted.  In general, you have until the 15th day of the 10th month following the end of the plan year to get the amendment adopted and implemented. I'll also point out that although -11(g) has a heading of "Corrective amendments", you are not required to have a failure to use -11(g).

 

If you are trying to correct a qualification failure from 24 months ago, there should be something under EPCRS that will help.  

[K2retire]

Is it a discretionary formula?

[ERISAAPPLE]

Why would they want to do that?  Just increase it this year.  Are they hitting the 415 limit or some other limit this year?

[jpod]

Are we talking about a 403(b) plan?  If so, you aren't faced with the same limitations as you would have with a qualified plan, although I am not prepared to say "no problem whatsoever."  You need to work through the pertinent provisions of 403(b) and the Treasury regulations. 

[Luke Bailey]

I have no hands-on with anything this late, but I guess in theory you could, provided the contribution passed 401(a)(4) for the prior year, and the contribution and allocation of it was consistent with the plan document in that year. Assuming that you are not allocating an excess contribution that was actually made in or, in a timely fashion, for the allocation year, the deduction will not be in the allocation year return, however, e.g. by way of an amended return, but rather on the return for the taxable year in which made, and the limitations under 404 will also be based on current year facts. Also, the amount will be an annual addition for the current year for 415(c) purposes. See 1.415(c)-1(b)(6). If the money actually went in and you're trying to get rid of the excess, you might run into a conflict with the nondeductible contribution provision and other issues. Actually, I'm not 100% sure you can do this. The devil is going to be in the details for sure.