Failure to Amend, Consequences and Grey Areas Options

[TooMuchFreeTime]

I'm doing something of a compliance review for a client on a 401(k) plan of theirs, and before I talk to them and put the screws to them, I wanetd to get a sanity check to make sure I wasn't being too harsh.

The basic issue is that they don't appear to have adopted some required amendments. Specifically, they're missing 401(a)(9) RMD changes and they still have a $5,000 involuntary cashout rule without the required rollover for amounts over $1,000. We actually alerted them of this problems last year, but oh well.

There are a couple of mitigating factors, but the Code Nazi in me doesn't care; I just wanted to bounce these off of the crowd here and get a consensus. For the sake of argument, let's assume that they've been in full compliance in operation, and that our only problem is documentation.

Prototype Adoption
From the plan's original effective date, it was individually designed. However, effective 1/1/07, they have adopted a prototype plan. The prototype sponsor has kept it up to date, and I don't have any concerns going forward. However, my understanding is that with respect to this specific plan, none of the prototype amendments would have been effective prior to 1/1/07, and there is still a gaping complaince hole for the period between the required amendment date and the prototype adoption. I'm afraid that client is going to resist correcting the missed amendments by relying on this new prototype.

Also, what effect does this have on the IRS determination process? Surely if they had applied for a det letter using a new individually designed restatement, the IRS would have requested the interim amendments and discovered the oversight. However, given that they're likely relying on the prototype's opinion letter, now, is there any way the IRS would be able to identify this error short of a random plan audit?

Lost Documentation?
The client has been able to provide us with the cash-out amendment for a sister plan that was timely adopted. Given their administration, I find it likely that they would have adopted a similar provision for the plan in question at the same time. However, they have yet to produce it. My question then is whether, from a compliance standpoint, there is any difference between having never adopted an amendment at all and adopting it, only to lose it to the nether of space 30 seconds later?

Thanks for the feedback. I sometimes get a little too excited about shuttling clients off to EPCRS and sometimes like to check my gut against a 3rd party.

This post has been edited by TooMuchFreeTime: Oct 22 2008, 11:41 AM

[QDROphile]

EPCRS nonamender filing.

[Sieve]

If you don't physically have the signed amendments/documents, VCP nonamender is the only way to go. If discovered on audit or fdl process, it's bad news!! It's not worth the chance. Saying it must have been signed based on a sister amendment and a quarter (or whatever) will get you a cup of coffee.

[jlea]

Plus, the interim nonamender process has been made streamlined and cheap ($375 is coming to mind). I got a compliance statement back this summer within 6 weeks from the time it left my desk.

[TooMuchFreeTime]

Thanks for the feedback.

Generally what I expected, but it's nice to hear somebody saying the same thing as the voices in my head.