The Right to An Allocation (Posted November 22, 2004) Technical Tip 133: The following question and answer were from the IRS Q&A Session at the 2003 ASPPA Annual Conference: A profit sharing plan provides that each eligible participant who is credited with 1,000 hours of service and who is employed on the last day of the plan year is entitled to receive an allocated share of the discretionary employer contribution. The plan sponsor intends to amend the plan to change the allocation formula, and the amendment could result in smaller allocations for some participants. To avoid any potential violation of the anti-cutback requirements, when should the amendment be adopted? a. Before any participant is credited with 1,000 hours of service? b. Before the last day of the plan year? c. Before the employer contribution is actually deposited to the plan? d. Within 2½ months after the end of the plan year? Response: In Technical Advice Memorandum (TAM) 9735001, issued on August 29, 1997, it was concluded that a participant’s right to an allocation is protected under Code section 411(d)(6) once the participant has satisfied all of the conditions necessary to receive the allocation. Therefore, the plan amendment would have to be adopted prior to the time that the participant satisfies the conditions necessary to receive the allocation. In this example, because the participant must be employed on the last day of the plan year to receive an allocation, the amendment could be adopted anytime prior to the last day of the plan year. View all Tips © 2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.