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cathyw

Eligible for SCP?

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A law firm client maintains a 401(k) plan with 21/1 eligibility and semi-annual entry.  The plan excludes attorneys other than those specifically named.  We just found out that they allowed a NHCE attorney into the plan on what would have been her otherwise correct entry date of July 1, 2018.

The Appendix B correction method by plan amendment doesn't seem to fit this since it's not a case of the early inclusion of an employee who did not yet meet the age/service requirements.  Any chance it would come under the new retro amendment SCP provisions of Rev Proc 2019-19?  I would characterize it as an increase in a benefit, right or feature (albeit for one individual)...but what is meant by the requirement that such increase "applies to all employees eligible to participate in the plan"?  All employees who are otherwise eligible to participate already participate.  Since no attorneys (other than those specifically named) are eligible to participate in the plan would that sentence be satisfied without extending participation to them?

I know VCP would always be an alternative, but is SCP possible? 

Thanks for all input.

 

 

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I will admit to not having studied the new rules enough to help you, but this seems to be something that the IRS probably wouldn't wish to allow via SCP, so I would interpret the guidance with that as my premise.

 

   

 

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You probably meant 410(b), not (a), because limiting "who" may participate is not an issue under 410(a).  Presumably they took 410(b) into account in the plan design (e.g., enough HCEs are excluded to comfortably pass coverage).

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For what it's worth, at the most recent ABA May Meeting, the IRS took the position that an increase in benefits for all participants in the plan means an increase in benefits for every participant in the plan. The example was "the plan provides a fixed 10% profit-sharing allocation to all participants, but the plan sponsor inadvertently only made an 5% allocation to every participant (not just one or some). You can self-correct by adding the 5% difference for every participant." 

Their position also was that a failure relating to a plan feature that does not affect every participant (e.g., an across-the-board problem with loans or initial eligibility) does not allow for self-correction under the new rule even if you are attempting to correct for every participant affected by the feature (if that includes less than every participant in the plan). 

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