I have been asked to prepare an amendment to allow one participant to receive a PS contribution who is inelegible due to hours (1000 hour requirement in doc). I have not prepared anything like this and I am unsure how to begin. A colleague referenced a 411(d) amendment, but I have been unsuccessful in finding a sample amendment similar to what I am attempting to do. Any suggestions, thoughts, cites?

Thanx!

Dollars to donuts (doughnuts?) the cite you are looking for is 1.401(aa)(4)-11(g). There is nothing special about the amendment. It just says that effective for the year you are trying to add this person, you make an amendment that..... adds this person. The way you go about it, though, can have implications. So you really need to discuss this with somebody familiar with these types of amendments so they can guide you through the choices available.

Thanx, Mike. I'll check out that cite.

11-(g) is specifically for correcting failed coverage/nondiscrimination testing - not just adding Johnny cause you feel bad that you cut down his hours.

Ironically, 411(d) probably supports why you can't do this.

Phooey. Strong letter to follow. If you feel bad about cutting down his hours, -11g is a fine provision to use to rectify it. The IRS is on record countless times indicating that a failure of any kind is not necessary before a plan sponsor may use a -11g amendment.

Now, if you want to use an -11g amendment every year to give him a few extra bucks, then I agree that 411 might present a problem (might).

If the fortunate employee is an NHCE, what is the problem?

I would recommend against trying to deduct the portion of the contribution generated by making the amendment until the following year. Otherwise, Mr. IRS may not like you.

I'm interested to know the basis for doing this amendment based on 11(g)-which applies to "corrective amendments." What are we correcting?

The "basis" is "because we feel like it." The IRS has long ago gone on record as saying that there is no threshold one needs to cross in order to invoke -11g. They said they started down the path of implementing rules for this purpose and decided that it was just about impossible to come up with any that were reasonable. So they made it clear that one does not need a failure, since proving a failure would involve way too much work. The only requirements are those that are laid out: non-discriminatory alone and in concert with the existing provisions.

I just submitted this to TagData and they said you must fail a test for this to work. Otherwise, it is a discretionary amendment, which must be executed before the end of the year.

Proceed with caution is my advice

I will take Mike's opinion (I happen to have the same one) over TAG anyday.

So they are saying that if you do a non-discrimination test and it needs a corrective amendment to pass, and then the IRS comes in and does a more sophisticated test (say, accrued to date) and it passes, then your amendment is blown out of the water because it is now somehow discretionary? I hope you can see that the above is untenable.

So, let's reverse it. The plan is a new comparability plan intended, for the most part, to be tested on benefits. However, in a given year I test it on contributions and, surprise, surprise, it fails. So, if the above case (where the IRS comes in an invalidates your amendment) is not logically sufficient for you because you want to say that at least you have a run in file that shows "FAIL", well in this case I also have a run that says "FAIL", so can I use an -11g amendment now?

There are very few cases where one runs a non-discrimination test and at least one kind of test doesn't say "FAIL".

I guess you are saying that for my -11g amendments where there is no obvious failure I need to generate that run and put it in file? OK, I guess.

But somehow I doubt it.

I respect the guys at TAG and would expect them to be right far more often than not, even approaching 100%. But in this case, I think there must have been some communication problem, because the IRS has stated at conference after conference that one need not establish that a failure has occurred to invoke -11g. Otherwise, they would have put that in the regs as one of the requirements. Strange that it isn't in there.

To further the point as to why an -11(g) amendment is not needed just for failure, consider there is the requirement for the amendment to separately pass coverage and nondiscrimination under the component plan rules. Thus, it infers you are able to give benefits to highly compensated employees as part of the amendment or it would certainly pass by default. If -11(g)'s purpose was solely to correct failure, there would be no availability to give HCE's additional amounts.

I think the point is you must be failing SOMETHING. 99 Participants out of 100 are receiving a profit sharing contribution (allocated as a straight % of pay), there's no way your arguments apply. You can't amend the plan to add participant 100 under 11g (in my opinion).

Also, Blinky, if you're 11g amendment is to eliminate a last day rule, that amendment could benefit both HCE's and NHCE's, depending on who terminated before year-end.

I think your arguments have merit Mike, but only in very limited circumstances.

Mike/Blinky or whoever - would this perhaps have come up at an ASPPA conference where there's a specific Q&A that we could refer to? It would certainly be helpful if someone questions it. I'll be honest - I hadn't heard this before, but also have never looked into it because no one has ever asked! So we've only used it to correct a failure.

I'd appreciate your opinion on sort of an extension of this question. Say you have a traditional DB plan. Only employees are HC. One of them terminates employment in 2006 at zero% vesting. The remaining owners (naturally all family members) want to make this person 100% vested, so they want to retroactively amend the plan to provide for 100% immediate vesting. Can they do this?

I don't believe this could work in a profit sharing where forfeitures are reallocated, because this would result in an illegal cutback. In the DB plan, maybe possible? Does this raise any questions about deductibility of some amount of future contributions, since the forfeitures would otherwise become plan assets?

Thanks in advance.

I am wondering how the provision in IRS Revenue Procedure 2005-66, which states that discretionary amendents must be adopted by the last day of the plan year, fits in here.
In the above example where 99 employees are benefitting and one is to be added by the amendment, I think that it can not be done after the end of the plan year.

That was why TAGData nixed the amendment.