"I'm wondering whether a Section 401(a)-qualified retirement plan may provide an allocation condition that, instead of looking to the last day of each plan year, instead uses a somewhat later date, a little after a year closes. For example, to share in a nonelective contribution declared for 2027 and allocated in relation to participants' 2027 compensation, the participant would need to be employed on February 15, 2028.
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"Assumptions: The employer's accounting and tax year is the calendar year. The plan's plan year and limitation year are the calendar year. The plan uses no safe-harbor regime to meet any coverage, nondiscrimination, or top-heavy condition. The plan never has had difficulty meeting these conditions. Of those participants who might not share in a nonelective contribution (if one is declared for a year) because the
allocation-condition is the next February 15 rather than the last day of the year, that effect cuts against highly-compensated participants. (For the business and workforces involved, the executives are mobile and the nonexecutive workers are rooted.) And for further reasons, the employer is not the least bit worried about nondiscrimination.
"The plan sponsor could change from using IRS-preapproved documents to an
individually-designed plan. Questions: What qualified-plan rules, beyond nondiscrimination, are involved? What am I missing? Are there reasons beyond tax law why an employer should not do this?"
