A calendar year plan currently has the following benefit accrual requirements for sharing in the profit sharing contribution:

1- those participants who are employed on the last day of the year --> shall share in the profit sharing with no hours requirement.
2- those participants who are NOT employed on the last day of the year --> shall only share in the profit sharing if they completed at least 500 hours during the plan year.

The employer wishes to amend the plan to the following benefit accrual requirements:

1- those participants who are employed on the last day of the year --> must complete at least 500 hours during the plan year to share in the profit sharing.
2- those participants who are NOT employed on the last day of the year --> shall NOT share in the profit sharing, regardless of hours worked.

Due to anti-cutback, must the employer wait until the plan year beginning 1/1/2003 to make both of these changes? Or, since it is unlikely that anyone has completed 500 hours of service yet this year, can the second benefit accrual requirement be amended effective this year?

Thanks.

Kelly,

Think about when the benefit is accrued to the participant or when they meet the right to get the benefit:

1. Last day requirement is not met until a participant has been employed on the last day. I believe any change you make to this requirement prior to the last day would be okay as no benefit has been accrued yet and therefore hasn't been cutback.

2. 500 hours requirement. When would a participant accrue 500 hours? How the plan calculates hours will affect the date a participant accrues this benefit, but realistically it would be around March 31 (for a calendar year plan). Therefore, if you amended prior to this date (or prior to anyone who terminates and works 500 hours) you would be able to change this without a cutback.

To summarize, both accrual requirements could probably be changed now without any cutback of benefits.

Many plans state that the 501 hours for a terminated employee doesn't apply to those who retire, die or become disabled. Wouldn't the employer need to make sure no participant accrued a right to the allocation based on those exceptions before the plan was changed?

Although most plans will waive all the accrual requirements for those participants who have died, been disabled, or have retired. As long as the waiver is still in effect, changing the accrual requirements would not affect these participants.

Thank you for your input!