Utilizing a Retroactive Amendment

Retroactive plan amendments must comply with various legal and regulatory frameworks, including Internal Revenue Service (IRS) regulations, the Employee Retirement Income Security Act (ERISA), Department of Labor (DOL) guidelines, and other relevant laws and regulations.

1. Adopt Regulatory changes: To help employers avoid penalties and potential litigation associated with non-compliance.
2. Optional changes implemented during the year

• Generally, adopt the written amendment by the end of the plan year in which the change begins operating.
• This applies to both individually designed and pre-approved plans.
• For example, a calendar-year plan that implements an optional feature in July generally must adopt the amendment by December 31.

2. Certain benefit increases after year-end: Employers may choose to implement retroactive plan amendments to improve benefits for employees, such as increasing retirement plan contributions or enhancing health and welfare plan coverage. 

• For plan years beginning after December 31, 2023, certain benefit-increasing amendments may be adopted by the employer’s tax-return filing deadline, including extensions.
• The amendment is treated as adopted on the last day of the affected plan year.
• This rule excludes increases in matching contributions.
• All other applicable tax requirements still apply. This is not blanket permission for retroactive employee deferrals.

3. Correcting past errors: Retroactive plan amendments can be used to correct errors or omissions in plan documents or administration. These corrections help ensure compliance with applicable laws and regulations and maintain the plan's tax-qualified status.

• A retroactive amendment may sometimes make the document match past administration.
• Generally, IRS approval is needed through the Voluntary Correction Program, or Audit CAP if under examination.
• Limited self-correction exceptions include certain unauthorized loans, hardship withdrawals, and early participation.

• Amendments generally cannot reduce already-earned benefits or protected rights.
• They must satisfy applicable coverage, nondiscrimination, and contribution-limit rules.
• A later paperwork deadline does not postpone operational compliance.
• Applying a retroactive amendment will need to be applied to all eligible employees, so the update to fix one issue may inadvertently add new issues where the change must be applied to other eligible employees.

Example: For catch-up deferrals, the plan must authorize them, and eligible employees must have a genuine opportunity to contribute. Employees generally must elect deferrals before pay becomes available. A retroactive amendment alone does not allow already-paid wages to become catch-up deferrals.