Is this 11(g) amendment discriminatory?

[cathyw]

A DB plan excludes HCEs (other than the two owners) and requires one year of service for NHCEs.  For 2023 all eligible NHCEs are participating, but the plan needs to include one more participant to satisfy the 40% requirement of (a)(26) minimum participation.  There are several HCEs who would have the one YOS in 2023, and there are several NHCEs who were first hired in 2023 and do not have the one YOS.

If an amendment brings in one HCE retroactively for 2023, would that be a discriminatory amendment under 11(g) standards?  Since the newly hired NHCEs are statutory excludables for 2023, we can ignore them for coverage.  But an amendment granting a meaningful benefit just to one HCE is concerning to me.  We discussed that they can alternatively bring in one NHCE early and grant the benefit (of course, testing under 410(b) would now have to include everyone with that reduced eligibility), but the plan sponsor would like to grant the benefit to this one HCE.

Is this a problem or am I just overthinking this?

Thanks.

 

 

[C. B. Zeller]

You are correct. In order to satisfy the requirements of 1.401(a)(4)-11(g) (and 1.401(a)(26)-7(c), it's oft-ignored sibling), the amendment must pass coverage and nondiscrimination testing on its own.

The way to bring in the HCE (presumably with a 0.5% accrual) under a retro amendment would be to also increase accruals for enough NHCEs to pass the ratio percentage test in the same amendment, also with 0.5% accruals for each (on top of whatever they earned in the plan under the base formula).

This issue will largely go away next year when SECURE 2.0 retro amendments become available.

[cathyw]

Thanks for the quick response.