Can I do an 11-g amendment in this case?

Plan has three allocation groups, with pro-rata allocations within each:

Owners (2 participants)

Other HCE (3 participants)

Staff (6 participants)

Passes testing at gateway (4.25)

Right now HCE group gets 5% of pay.  They want to give ONE of those HCE 8%.

Can they do an 11(g) amendment giving the HCE 8% and 2 NHCE also 8%?

No. The 11(g) amendment must also pass by itself regarding the benefits that it provides without regard to any existing benefits.

I didn’t see the part about giving the NHCEs anything. 

Hang on, though - if 1/5 HCEs is getting an extra 3% more, and 2/6 NHCEs are getting 3.75% more than the normal allocation, then I don't think the increase in benefits is discriminatory.  Those extra amounts would pass 410b and you wouldn't even have to try cross-testing them.

Does there not need to be a failure of some sort that the 11g is correcting? I agree that HCEs can get increases via 11g assuming nondiscriminatory, but what is the basis for the amendment in the first place?

It looks like the plan allocation formula defines groups of employees versus a rate group for each participant.  I don't see how you can modify the allocation formula after the close of the plan year disguised in an 11(g) amendment to add a new rate group for one HCE and a new rate group for 2 NHCEs.

Agree with CuseFan and Paul I.

There is nothing to amend/correct here. Simply a desire in providing an HCE additional allocation.

The way the groupings are defined, the way I see it and assume, if you increase for one HCE, you must increase for all HCEs as allocations within the group would be done on a prorata basis (usually standard language would dictate that).

Now if you increase for all HCEs and then fail the testings, time for an 11-g amendment unless you increase the allocation for all NHCE globally.

You do not need a "failure" to execute an 11-g amendment.  From a Relius write up from a while back:

Does the plan actually have to fail nondiscrimination testing before the plan adopts an 11(g) amendment?  In other words, must the employer make the contribution, fail nondiscrimination testing and then adopt the amendment, or, can the employer amend the plan without failing the test first? 

No, the plan does not need to fail nondiscrimination testing before adopting an 11(g) amendment. The preamble to the 1991 Code 401(a)(4) regulations (Note: The IRS reissued the nondiscrimination regulations in 1993 but did not make changes to the rules regarding 11(g) amendments except to add a mechanism to correct a benefits, rights and features problem) states: “In order to permit employers to make practical choices based on administrative concerns, use of the retroactive correction period is not conditioned on a demonstration the plan actually failed to satisfy the nondiscrimination requirements. In addition, correction is not limited to amendments correcting disqualifying defects.” Accordingly, a plan sponsor could amend the plan to place certain highly or NHCEs in different classifications so that it doesn’t have to make as large of a contribution to the NHCEs to pass nondiscrimination

Here is part of the section from Relius that follows with some requirements the plan sponsor may not embrace:

"What conditions must an 11(g) retroactive corrective amendment satisfy? 

An 11(g) amendment must satisfy the following conditions: 

1. The amendment may not reduce benefits (including any benefits, rights and features), determined on the basis of the plan terms in effect immediately prior to the amendment. However, see 5.b. below. 
2. The amendment must be effective as if the amendment had been made on the first day of the plan year being corrected. 
3. The amendment must be adopted by the 15th day of the tenth month after the close of the plan year being corrected. If the plan sponsor applies for a determination letter before the end of the 9½ month period, the retroactive correction period is extended in the same manner as the remedial amendment period. 
4. The additional allocations or accruals must separately satisfy the nondiscrimination requirements and the group of employees benefited by the amendment must separately satisfy the coverage requirements using the same rules that apply in determining whether a component plan separately satisfies coverage.
   1. A plan does not need to satisfy this requirement if the plan sponsor is amending the plan to conform to one of the nondiscrimination safe harbors. 
5. The amendment cannot be of a pattern of amendments being used to correct repeated failures with respect to benefits, rights and features.
   1. The relevant provisions of the plan immediately after the amendment with respect to benefits, rights and features remain in effect until the end of the first plan year beginning after the date of the corrective amendment.
   2. The corrective amendment either expands the group of employees to whom the benefit, right or feature is currently available, or eliminates the benefit, right or feature to the extent permitted under the anticutback rule. 

Trying to visualize this concept, best with couple questions.

Ok, let's say in BG's question, wants to increase one HCE to 8% and provide an 11-g amendment today saying Joe HCE will get an additional 3% of PS allocation where all other HCEs in that group will stay at 5%.

Same with the NHCEs. Mary NHCE and George NHCE will get additional 3.75% where the other 4 NHCE will stay with 5%.

In both cases above, you are increasing the amount of PS allocation but not allocating ratably, possibly per document language.

How do you justify the additional deduction after 2 1/2 months (remember this is a voluntary addition and not mandatory) or will deduct in the current year?

You have a grouping with certain allocation language within each group and now with a discretionary 11-g amendment (not mandatory) you are arbitrarily changing the terms of allocation within each group (the way the allocation within each groupings are usually on a prorata basis and different than each participant who are in their own group).

Sorry for being dense here but I am trying to understand how this can be accomplished without violating anything. I am sure I am missing something here.

May be I will learn something new today.

18 hours ago, Jakyasar said:

How do you justify the additional deduction after 2 1/2 months (remember this is a voluntary addition and not mandatory) or will deduct in the current year?

I think this is an aspect of 11-g amendments that is often overlooked or simply ignored - my understanding is that the additional allocations are deductible in the current year (of the actual deposit) and not in the year allocated. It may be one of those things that is stuck in my head improperly but that's what I remember.

Is it that they're not deductible for the prior year?  Or is that they don't ADD to the deduction limit? 

What if my 404 limit had been 200,000 (before expanding the number of benefiting participants and the compensation total) and my original failing allocations totaled 180,000, and the new -11g extra benefits are 5,000? 

Is that last 5,000 still deductible even though it gets allocated to folks who weren't benefiting originally as of 12/31?  The plan could have deducted 185 readily enough all along.

Bri, you presented a few "if" related scenarios here.

I will go back and re-re-re-read the 11-g language in the regs.

I think Bird's point is a valid one.

I am making noise here and try to understand/learn one additional use of 11-g that is not a corrective action. I never used it for this purpose and for a good reason (at least for me).

On 4/13/2023 at 9:09 AM, Bri said:

Is it that they're not deductible for the prior year?  Or is that they don't ADD to the deduction limit? 

What if my 404 limit had been 200,000 (before expanding the number of benefiting participants and the compensation total) and my original failing allocations totaled 180,000, and the new -11g extra benefits are 5,000? 

Is that last 5,000 still deductible even though it gets allocated to folks who weren't benefiting originally as of 12/31?  The plan could have deducted 185 readily enough all along.

My understanding, and I admit to not being 100% confident, is that it is not deductible in the prior year - essentially you are adding contributions via a new formula, after the end of the year. (The new rules about retroactive plan adoption might impact this but I don't think so.)

Section 1.401(a)(4)-11(g)(5) reads:

"(5) Effect under other statutory requirements. A corrective amendment under this paragraph (g) is treated as if it were adopted and effective as of the first day of the plan year only for the specific purposes described in this paragraph (g). Thus, for example, the corrective amendment is taken into account not only for purposes of sections 401(a)(4) and 410(b), but also for purposes of determining whether the plan satisfies sections 401(l). By contrast, the amendment is not given retroactive effect for purposes of section 404 (deductions for employer contributions) or section 412 (minimum funding standards), unless otherwise provided for in rules applicable to those sections."