Amendment to Change Plan/Trust Year

[chris]

Profit sharing plan and trust has year ending June 30. Want to change plan year and year of trust to calendar year-end. Per Rev Proc 87-27 no IRS approval necessary for the plan year change b/c the plan not subject to 412. Automatic approval provided for change of trust year assuming conditions in Rev Proc 87-27 are met. My question has to do with operating the plan during/after/in light of the short plan year. For most amounts/limits, eg. compensation limit 401(a)(17), simple pro-ration made as follows: full mos. in short year/ 12 mos. With respect to year of service determination in short year, plan says such determination will be made for all purposes in accordance with DOL Reg 2530.203-2©. DOL Reg. 2530.203-2© deals specifically with vesting computation period. Would same apply to determining year of service for purposes of eligibility requirement in the plan?? It appears that reference to the DOL Reg cited above in the plan's definition of year of service mandates applying the Reg's rationale for all plan purposes where determination of year of service required. Any comments or suggestions??

[Wessex]

I have always "understood" that when service is credited on a plan year computation period and there is a change in the plan year, employees must be given a year of service for the 12-month computation period corresponding to the old plan year and for the 12-month computation period beginning on the first day of the first new plan year if they are credited with 1000 hours (or lesser number if the plan so provides) in each of the computation periods. I have never been able to find anything that officially confirms this, although it logically flows from the concept of computation periods, and I have seen brief references to this requirement - without citations - in some secondary materials.

I'd be interested to know what others have done.

[KJohnson]

Employer in October 2000 changes Plan Year from 9/30 year end to a 12/31/year thereby creating a short year of 10/1-12/31 2000 How do you count vesting--

10/1/99-9/30/2000--! Year

1/1/2000-12/31/2000-1 Year

Thereby "double counting" 1/1/2000-9/30/2000

Orw would it be

10/1/2000-9/30/2001--1 Year

1/1/2001-12/31/2001- 1 Year

Thereby "double counting 1/1/2001-9/30/2001?

[Guest Bandb]

The first option is correct.

You have no plan year ending 9/30/01, so option #2 wouldn't work.

[KJohnson]

I agree, but 9/30/01 is the end of the twelve month period beginning on the first day of the short plan year and some interpret the regs as that is the period for which you have to give a year of service.

[M R Bernardin]

I disagree. The DOL regulations provide that a change in plan year cannot adversely affect someone's vesting status. There is specific guidance in the regulations about the rules for double crediting during the transition period which, if followed, should ensure you have not harmed someone through the plan year change. I believe there is more than a hint in the regulations that the period of overlap is prospective, not retroactive. In your example, vesting would be 10/1/2000 to 9/30/2001 and 1/1/2001 to 12/31/2001.

[Guest Bandb]

The plan years in the example were ended on 9/30/00 and 12/31/00. Are you saying that the periods ended 9/30/01 and 12/31/01 should be consulted regarding vesting for these PYEs?