Board resolution used to limit deferral percentage and define catch-up contributions

Can a board resolution be used to state the maximum deferral percentage that can be deferred by the HCE group  and also state that any amount over the average by any HCE who has or will attain at least age 50 by the end of the 2018 calendar year will be considered a catch-up contribution?

No. A limit on the amount of deferrals for the HCE group would have to be done by plan amendment. The limit would have to be definitely determinable and not subject to employer discretion. 

Being an amendment, the usual rules around amendments apply. SMM is needed, 411(d)(6) applies, etc.

There are 4 and only 4 ways that deferrals can be reclassified as catch-up. Those are:

• Exceed the 402(g) limit
• Exceed the 415(c) limit
• Exceed a plan-imposed limit
• Excess contributions resulting from a failed ADP test, reclassified as catch-up rather than being distributed

If you adopt an amendment to limit deferrals, then deferrals in excess of the stated limit would automatically be reclassified as catch-up. Assuming, of course, your plan document permits it, which if it a volume submitter document it almost certainly does.

10 hours ago, C. B. Zeller said:

No. A limit on the amount of deferrals for the HCE group would have to be done by plan amendment. The limit would have to be definitely determinable and not subject to employer discretion. 

C.B. Zeller, I generally agree with your response to baileybear and he or she should find it very helpful. However, would your answer be any different if the plan (which has a favorable determination letter), contains the following provision: "The [plan sponsor] and the Plan Administrator may from time to time impose limitations on Elective Deferral Contributions, including limitations that apply only to Highly Compensated Employees, as the [plan sponsor] and the Plan Administrator in good faith determine advisable to ensure compliance with any Federal income tax rule, or for administrative feasibility." 

Beyond Luke Bailey's suggestion, consider also the plan's provisions about what act and writing is sufficient to amend the plan.  Many plan documents allow as an amendment anything that is the act of the plan's sponsor under the law that governs that organization.  A governing body's resolution, if expressed or recorded in writing, might be a plan amendment.

Whether something is a plan amendment and what effect an amendment has on the plan's tax treatment (or whether a document user may rely on an IRS pre-approval) are distinct questions.

About making allocation provisions that are sufficiently determinable to meet a tax-qualification condition, one might specify the HCEs' maximum elective-deferral percentage or the rule or formula by which it is determined.

C.B. Zeller wisely suggests some related issues and requirements.

 Q and A  ASPPA Conference #9 2004 (of course such Q and As might not reflect an actual Treasury position, but I have generally found them reliable)

If a plan document provides that the administrative committee may limit HCE deferrals in order to prevent ADP testing violations, and the plan administrator takes that action through resolution and not by plan amendment, is this considered to be an "employer-provided limit" so that contributions in excess of this imposed limit are eligible to be treated as catch-up contributions?

A: Yes

Is there any availability issue under 414(v) or 401(a)(4), since the limit applies only to HCEs if all NHCE employees can defer at that level, just not as catch-up contributions?

A: No

The IRS has historically shown that it does not understand what constitutes plan documents, plan amendments, or corporate procedures such as resolutions and delegation.  The discussion above does nothing to clarify what constitutes plan terms and amendment of plan terms based on solid  principles, therefore what is left is a confusing hodgepodge of apparent "separate" rules to ponder and try to remember and reconcile.

1.  A proper and properly drafted corporate resolution can be a plan amendment.  A lot is packed into "proper" and "properly" including respect for plan  terms.  That is not the best style for plan documentation.

2. Assuming the board of a plan sponsor has the authority to amend the plan, the Board should have authority to delegate the amendment function.  The delegate must act properly, including act within the authority and within proper procedures for documentation.  It would be nice if corporate and plan documents spelled this out rather than forcing reliance on generic corporate and agency law, but good luck with that in the world of pre-approved documents from vendors who mostly have concerns only for LRMs and their own internal administrative issues.

About QDROphile’s last point:

My article “May an employer restrict who can amend the plan?” in the December 2018 issue of Wolters Kluwer’s 401(k) Advisor explains that the Supreme Court interpreted ERISA to treat “The Company may amend the Plan.” as an amendment procedure that meets the command of ERISA § 402(b)(3).

What do BenefitsLink mavens think about a TPA inviting a plan’s sponsor to consider whether it wants to add to a preapproved document’s general provision some further details about which people can or can’t amend the plan, and what kind of written act is valid to amend the plan?

Or is that impractical for TPAs too?

3 hours ago, QDROphile said:

The IRS has historically shown that it does not understand what constitutes plan documents, plan amendments, or corporate procedures such as resolutions and delegation.  The discussion above does nothing to clarify what constitutes plan terms and amendment of plan terms based on solid  principles, therefore what is left is a confusing hodgepodge of apparent "separate" rules to ponder and try to remember and reconcile.

1.  A proper and properly drafted corporate resolution can be a plan amendment.  A lot is packed into "proper" and "properly" including respect for plan  terms.  That is not the best style for plan documentation.

2. Assuming the board of a plan sponsor has the authority to amend the plan, the Board should have authority to delegate the amendment function.  The delegate must act properly, including act within the authority and within proper procedures for documentation.  It would be nice if corporate and plan documents spelled this out rather than forcing reliance on generic corporate and agency law, but good luck with that in the world of pre-approved documents from vendors who mostly have concerns only for LRMs and their own internal administrative issues.

QDROphile, your points 1 and 2 are excellent and will be very helpful to persons taking your advice. I would point out, however, that your first paragraph pretty much describes...well...clients!