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PPA restatement deadline


JPIngold

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I have a client who is being told they have to execute the PPA restatement of their safe harbor 401(k) amendment by the end of this calendar year with a 1/1/2015 effective date because the original effective date of the plan was 1/1/2009 and that plans must be restated every six years.

I am telling the client that the IRS is none too keen on retroactive safe harbor plan amendments and their deadline to adopt the PPA restatement is 4/30/2016, so they should just make their amendment effective 1/1/2016. [We are actually recommending they make some changes to the plan's design anyway, so 1/1/2016 makes sense.] I am trying to convince them that the six year clock is only in reference to the restatement deadlines and not the date of your last restatement (or in this case, the original adoption of the plan.]

The provider is insistent that they have to adopt BOTH the 1/1/2015 plan and then they will do the 1/1/2016 amendment.

The safe harbor notice timing issues aside ... has anyone heard a stance like this on the "six year clock"???

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I really don't want to misspeak, but have a question for those of us who may be 'old enough' to remember:

Wasn't there an issue stirred up in North Carolina with the Bar Association during the early 2000s arguing that merely completing an adoption agreement constituted a practice in law?

I, vaguely, remember something like this.

CPC, QPA, QKA, TGPC, ERPA

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Well, during a restatement, the plan's language doesn't change; you're merely drafting the same language onto another document. An amendment is an actual change to the plan's language; and we know you 'generally' cannot retroactively 'amend' a plan to conform to an operation. So, their assertion is nothing new.

The issue is the rules on timely restatement; which would suggest that any restatement effective date within the "Remedial Amendment Period" would satisfy your restatement requirement. The suggestion that one restatement 'effective date' would depend on the 'effective date' of the most recent restatement would appear to totally discount the significance of the 'remedial amendment period'.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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Whatever one thinks about what JPIngold's client heard about when some document should be adopted, it seems likely that the statement was made by a worker of Voya, which is the recordkeeper for plans that buy under the American Bar Association's program.

http://www.abaretirement.com/

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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So are we all in agreement that prohibiting a restatement of a safe harbor plan effective 4/1/2016 (for example) in which NO changes are being made to anything that matters (eligibility, vesting, distribution options, contributions, definition of compensation, etc etc) would be ridiculous?

Was there nothing out of an ASPPA Q&A that supported this? Relius had a newsletter in 5/2015 in which they dramatically advised not to do it, but said if you had no option, just don't make any other changes.

My oh my how the IRS has destroyed safe harbor plans through these idiotic policies.

Austin Powers, CPA, QPA, ERPA

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I sure hope that the IRS would see it as ridiculous as those in the practice do. Otherwise, next thing we find out is that 401k plans can't transfer providers mid-year because they cannot restate the document to a new vendor's program.

R. Alexander

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Wasn't there an issue stirred up in North Carolina with the Bar Association during the early 2000s arguing that merely completing an adoption agreement constituted a practice in law?

Yes. The NC Bar was hearing a case on "unauthorized practice of law". There may be a detailed summary on their website; my recollection is that those people authorized to "practice" under ERISA (enrolled actuaries, accountants, attorneys, enrolled agents, etc.) are not in violation of the UPL statute as long as they stick to the ERISA matters. Don't assume this applies in any other jurisdiction.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Florida’s Supreme Court decided not to approve a proposed opinion about the unauthorized practice of law. The court reasoned that some of what the proposed opinion would have proscribed is authorized under the U.S. Treasury department’s rules that allow not only a lawyer but also a certified public accountant, an enrolled agent, an enrolled actuary, and an enrolled retirement plan agent to practice before the Internal Revenue Service. The Florida Bar re Advisory Opinion – Nonlawyer Preparation of Pension Plans, 571 So.2d 430 (Fla. 1990) [slip opinion attached].

A State cannot prohibit a practice that Federal law authorizes. Sperry v. State ex rel. The Florida Bar, 373 U.S. 379 (1963). This idea might protect a preapproved document sponsor’s responses to its user’s questions about those documents. To maintain the document that the IRS calls a pre-approved document (such as, a prototype or volume-submitter document), such a document’s sponsor must include the sponsor’s (or its authorized representative’s) address and telephone number, to receive “inquiries by adopting employers regarding the adoption of the plan, the meaning of plan provisions, or the effect of the opinion letter.” One could argue that a plausible interpretation of this Treasury department administrative law is that a document’s sponsor is at least expected to answer a pre-approved document user’s questions. From that premise, one could argue that State law cannot preclude acts that Federal law at least authorizes.

About a document sponsor that answers a user’s questions, consider that a nonlawyer is held to at least the same standard of care and expertise as a competent lawyer.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Let's face it we all practice law every day whether we care to admit it or not. I research regs, provide advice, craft amendments, assist in EPCRS corrections. Heck, my job description is essentially to practice law. We don't call it that, we call it being a TPA, but there's not much difference aside from the fact that we are paid for a "project" and not an hourly basis. OK I did not go to law school.

And by the way, I have my favorite ERISA attorney on speed dial and I call him for help more frequently than he probably would like (he's made plenty of money solving my client's problems!). But to say that a TPA can't "practice law" is to deny the entire system of thousands of people who can efficiently assist plan sponsors in administering their plans. You call it practicing law, I call it helping my clients comply with rules regulations. Probably no difference aside from semantics.

Austin Powers, CPA, QPA, ERPA

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austin3515's description is the behind-the-scenes essence of the Florida court's reasoning. It's also the outlook of many employee-benefits lawyers.

For advice-giving rights and responsibilities, I continue to advocate getting rid of unnecessary distinctions.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Peter,
your explanation seems to coincide with IRC 7525.
https://www.law.cornell.edu/uscode/text/26/7525

Do you have any comments about that section?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Internal Revenue Code § 7525, which provides a limited evidence-law privilege in non-criminal Federal proceedings for some confidential communications with a “federally authorized tax practitioner”, refers to 31 U.S.C. § 330.

The statute codified there grants the Secretary of the Treasury power to "regulate the practice of representatives of persons before the Department of the Treasury[.]" The statute's implementing rule, 31 C.F.R. part 10, was the ground for the Florida court's legal reasoning.

Some might welcome the idea that the § 7525 privilege applies to a communication made for the purpose of getting a practitioner's tax advice that was "within the scope of the individual’s authority to practice[.]"

For example, the IRS may not compel an ERPA to reveal a confidential communication her client made to ask for the ERPA's tax advice about whether a user may rely on an IRS letter issued to the ERPA's employer as a prototype sponsor.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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For example, the IRS may not compel an ERPA to reveal a confidential communication her client made to ask for the ERPA's tax advice about whether a user may rely on an IRS letter issued to the ERPA's employer as a prototype sponsor.

Agreed, but does this imply/require a prior intent of confidentiality?

Even if no prior intent (likely, most plan sponsors have never heard of 7525 and would not anticipate any level of confidentiality with the ERPA or EA), what if an IRS request arises later? Is there a requirement for the EA/ERPA to invoke the confidentiality relationship?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Remember, this privilege can protect only a communication, not underlying facts.

Internal Revenue Code § 7525 provides its limited privilege by analogy to the evidence-law privilege for confidential communications with a lawyer. So a communication can be protected only if, among other conditions, the communication was made for the client’s purpose of obtaining tax advice and was made in confidence (not to be read or heard by a person beyond the client and the practitioner).

Likewise, a client that wants to rely on the privilege as a ground for not producing or revealing a communication that otherwise the taxpayer was required to furnish or reveal should do something to invoke the privilege. The Internal Revenue Service ordinarily recognizes a taxpayer’s privilege claim made by the taxpayer’s representative.

For an examination, consider that a taxpayer might be represented by a practitioner other than the ERPA who was the maker or recipient of a communication. Under the rule that authorizes an ERPA’s limited practice, an ERPA “is limited to representation with respect to issues involving the following programs: Employee Plans Determination Letter program; Employee Plans Compliance Resolution System; and Employee Plans Master and Prototype and Volume Submitter program. In addition, enrolled retirement plan agents are generally permitted to represent taxpayers with respect to IRS forms under the 5300 and 5500 series which are filed by retirement plans and plan sponsors, but not with respect to actuarial forms or schedules.” 31 C.F.R. § 10.3(e)(2). An examination of a taxpayer might not be so confined.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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An important caution: My example above often won't work.

To get the IRC § 7525 privilege, the communication must have been made for the purpose of obtaining tax advice.

If the practitioner is an employee or agent of a business that denies that it provides tax advice, that denial might make doubtful the taxpayer's assertion that the communication was made for the purpose of obtaining tax advice.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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