True or False: A plan must apply the recharacterization rule before shifting elective deferrals.

The statement is false. The recharacterization rule in retirement plans applies to the conversion of amounts contributed to one type of retirement account (such as a traditional IRA) to another type (like a Roth IRA), allowing for the tax implications of contributions to be adjusted. However, this rule does not need to be applied in conjunction with shifting elective deferrals between accounts within a 401(k) plan or moving contributions between different types of deferral accounts.

When it comes to elective deferrals, employers typically maintain the ability to shift these deferrals without the requirement to go through a recharacterization process. Therefore, the recharacterization rule is not a prerequisite for modifying elective deferrals, making the assertion false.

The notion that this applies only if required by the IRS, or only for the first shift, misrepresents the nature of elective deferrals and the treatment of recharacterizations in relation to them.