Can an 11(g) amendment correct a coverage failure by decreasing allocations or accruals for HCEs?

The anti-cutback rule is a critical provision in retirement plan regulations designed to protect participants’ accrued benefits. Under this rule, amendments that reduce a participant's benefits or contributions are generally prohibited.

In the context of correcting a coverage failure via an 11(g) amendment, any attempt to decrease allocations or accruals for Highly Compensated Employees (HCEs) would run afoul of this anti-cutback rule. Reducing benefits or contribution rates for HCEs does not align with the intent of ensuring that all eligible employees, including HCEs, remain fairly compensated under the plan. The goal of coverage tests is to ensure that plans benefit a broad spectrum of employees and not disproportionately favor HCEs.

Thus, while 11(g) amendments can be utilized for various corrections, they cannot be employed to decrease benefits for HCEs as a method of rectification. This limits the options for plan sponsors seeking to adhere to compliance requirements while ensuring equitable treatment across all employee tiers.