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H/S amendment for plan doc by other provider/vendor


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I'm just curious about something. One-person plan has a plan document prepared by prior TPA using one of the national vendor's volume submitters. It is not the TPA's own document. It is also not the vendor we use.  Looking to control costs, wondering about preparing the H/S amendment only, rather than restate the plan document, think that works?

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Doing so takes the doc out of pre-approved status - I think.  I haven't looked at the latest hardship stuff from the IRS...if they provide a model amendment, it might be possible to tack that on to someone else's pre-approved document without affecting its status.

But...I believe that pre-approved docs need a sponsor, and is the prior TPA still sponsoring...?  Unlikely.  Unless that changed.  Our checklist says that if someone leaves, we have to tell them we are no longer sponsoring their pre-approved doc.  Some of this is angels dancing on the head of a pin because it's hard to imagine there's actually anything "wrong" with a plan that isn't technically operating as a pre-approved doc.

But...if we add your time thinking about this, and my time, and the time of all the others reading this, it's probably more efficient to just restate the damn thing and be done with it.  (I'm only half serious.  I understand that there's a theoretical cost to restate and you're trying to do the right thing but the reality is that when you take into account all the fussing you waste a lot of time and energy.  I'll sometimes cave and do it for little or no fee but then they're the ones that don't appreciate it.)

Ed Snyder

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On 10/18/2019 at 11:14 PM, TPApril said:

I'm just curious about something. One-person plan has a plan document prepared by prior TPA using one of the national vendor's volume submitters. It is not the TPA's own document. It is also not the vendor we use.  Looking to control costs, wondering about preparing the H/S amendment only, rather than restate the plan document, think that works?

I suggest that's wrong thinking.  You need to have clients on YOUR document; the documents you use and understand and are supported by your document folks.  Every client we take over automatically gets a restatement onto our volume submitter document.  "Controlling costs" is often a bad idea when it comes to doing things right for the client.  FWIW.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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You do not need to use a particular source for an amendment to maintain preapproved status. If the employer adopts a preapproved plan, it continues to have a preapproved plan for so long as it continues to be a word-for-word adopter of the document as reviewed by the IRS and approved via an IRS Letter to that Document Provider. Good-faith required interim amendments do not count against you, even if you write them yourself, since IRS Revenue Procedure 2011-49 requires "required" interim amendments as a condition of maintaining both qualified status and preapproved status, but without mentioning that such amendments need to come from the entity that received the IRS Letter. FWIW, losing preapproved status is much more drastic and much less common than losing reliance. (See below on reliance.) Modifications to preapproved language that are wholly unrelated to the content of required interim amendments are another matter, and could result in loss of preapproved status.

It is often important to use The Document Provider's amendment because you have some comfort that the architect of the amendment has taken into account the particular language of that particular plan product, but maybe that is not an issue. For example, there's any number of different and acceptable ways to say that "the six-month suspension on deferrals no longer applies," and any variations on that theme will most likely get that particular task done. (I oversimplify, but you get the drift.) As Larry suggested, it might be better, though, to restate the plan to The Next Provider's document and then use That Provider's amendment. It might be better to use a particular source amendment so that it dovetails with an SMM, or a revised SPD, or a revised hardship distribution form from That Provider. It might be better to use a particular amendment because it will get mapped to the a particular Provider's Cycle 4 (not Cycle 3) document many years from now. It might be better for lots of reasons to use A Particular Provider's amendment (and it might be better to have all required interim amendments come from a common source), but it is not required. All that is required is for the employer to maintain qualified status via every required interim amendment, especially when it is not clear the employer is (still) covered by a particular Provider's "blanket" amendment.

Except when the IRS so states (as when, typically, using IRS sample amendments), reliance does not typically occur until good-faith interim amendments are eventually incorporated into a timely adopted retroactive preapproved restatement for a particular remedial amendment period during the applicable 2-year restatement window. The only thing that is required until then is that each such amendment be complete enough, timely enough, and accurate enough to pass the IRS smell test for constituting a good-faith interim required amendment for that particular plan at that particular time for that particular reason. So, it would not look good if the employer adopts an amendment that clearly applies to a plan other than the plan purportedly being amended, such as because the amendment refers to numerous Plan Document Sections that do not appear in the employer's plan document. So, yes, if you are comfortable cutting corners, you can go find an amendment wherever you like, but someone should be evaluating how suitable each such "available" amendment is for that particular plan for that particular reason for that particular time.

The hardship amendment does more than suspend deferrals and expand potential sources. The amendment fundamentally changes how hardship determinations are to be implemented under new regulatory provisions, so caution is recommended in determining the trustworthiness of the source for the hardship amendment.

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14 hours ago, Doc Ument said:

You do not need to use a particular source for an amendment to maintain preapproved status. If the employer adopts a preapproved plan, it continues to have a preapproved plan for so long as it continues to be a word-for-word adopter of the document as reviewed by the IRS and approved via an IRS Letter to that Document Provider.

...and it continues to be sponsored by the firm that got the approval, no?

I didn't read the rest of your message, sorry.

Ed Snyder

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Unless someone can point out Revenue Procedure language requiring an employer to commit to using only amendments prepared by the firm on the Letter, I don't see such a restriction. I generally see a loss of preapproved status only for the limited situations mentioned in the applicable Procedures.

Suppose Henry has Advisor A who uses the XYZ document. Suppose Henry fires Advisor A and hires Advisor B, who also uses the XYZ document. Both Advisors receive the same hardship amendment from XYZ. Does Henry lose preapproved status because Henry uses the XYZ hardship amendment that was provided to Advisor B rather than the identical hardship amendment that XYZ provided to Advisor A? I think not. The source of the amendment is not a condition for maintenance of preapproved status. But Henry is no longer covered by Advisor A's "on behalf of all adopting employers" amendment, nor is Henry covered by Advisor B's "on behalf of all adopting employers" amendment until such time that Henry adopts Advisor B's plan. Until then, during that interim when there is no connection to the firm on any Letter for the document then in use, Henry must sign an employer-level hardship amendment (assuming Henry's plan is a K plan with hardship provisions). If the plan is audited, I predict that the IRS will not attempt to classify Henry's plan as having been so substantially modified as to lose preapproved plan status. If the plan submits a VCP application, I predict the IRS will find that the plan was "subject to a Favorable Letter." The wording of Henry's plan is the same as if he had not changed his Advisor. If this fact pattern results in the loss of preapproved status, I think there would be a commotion to urge the IRS to revise its guidance in order to prevent such a result.

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That's not what I was talking about.  It's not something that worries me a lot, but I'm pretty sure there is language in a Rev Proc (?) that says an adopter (employer)  can't rely on an approval letter if the sponsor no longer sponsors the document (for that client, or otherwise).  Or words to that effect; I'm being imprecise.

Ed Snyder

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Rev Proc 2011-49 (PPA) Section 19.03 Other Limitations and Conditions on Reliance - The following conditions and limitations apply with respect to both M&P and VS plans:
(1) An adopting employer can rely on a favorable opinion or advisory letter for a plan that amends or restates a plan of the employer only if the plan that is being amended or restated was qualified.
(2) An adopting employer has no reliance if the employer’s adoption of the plan precedes the issuance of an opinion or advisory letter for the plan.
(3) An adopting employer can rely on an opinion or advisory letter only if the requirements of this section 19 are met, and the employer’s plan is identical to an approved
M&P or specimen plan with a currently valid favorable opinion or advisory letter; that is, the employer has not added any terms to the approved M&P or VS plan and has not modified or deleted any terms of the plan other than choosing options permitted under the plan or, in the case of an M&P plan, amended the document as permitted under section 5.06 or 5.09 or, in the case of a VS plan, modified the document as permitted under sections 14 and 15. Thus, for example, in the case of a VS plan, the employer’s plan must be identical to the approved specimen plan except as the result of the employer’s selection among options that are permitted under the terms of the approved specimen plan and modifications permitted under sections 14 and 15.

For purposes of this section 19.03(3), a plan will not fail to be identical to an approved M&P or specimen plan if:
(a)
the employer modifies or amends the plan to add or change a provision and/or to specify or change the effective date of a provision, provided the employer is permitted to make the modification or amendment under the terms of the approved M&P or specimen plan as well as under § 401(a) or 403(a), and, except for the effective date, the provision is identical to a provision in the approved plan;
(b)
the employer, sponsor or practitioner adopts an interim or discretionary amendment in accordance with section 21 or Rev. Proc. 2007-44; or
(c) the employer adopts a model or sample amendment that the Service has indicated will not cause the plan to be treated as an individually designed plan.
For example, an employer is not required to restate its M&P or VS plan in order to change options under the plan or to specify different effective dates. Also see section 5.02, which limits an employer’s ability to amend an M&P plan without causing the plan to be treated as an individually designed plan, and section 5.11, which requires the employer to complete a new signature page when the employer changes options in an M&P adoption agreement. An adopting employer cannot rely on an opinion or advisory letter if the adopting employer has modified the terms of the plan’s approved trust in a manner that would cause the plan to fail to be qualified under § 401(a).
.04 Reliance Equivalent to Determination Letter - If an employer can rely on a favorable opinion or advisory letter pursuant to this section, the opinion or advisory letter shall be equivalent to a favorable determination letter. For example, the favorable opinion or advisory letter shall be treated as a favorable determination letter for purposes of section 21 of Rev. Proc. 2011-6, regarding the effect of a determination letter, and section 5.01(4) of Rev. Proc. 2008-50, regarding the definition of “favorable letter” for purposes of EPCRS. Of course, the extent of the employer’s reliance may be limited, as provided in this section.

* * *

I see no requirement that an employer obtain those required interim (or discretionary) amendments from the entity that is on the Letter.

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16 hours ago, Doc Ument said:

I see no requirement that an employer obtain those required interim (or discretionary) amendments from the entity that is on the Letter.

I don't disagree with that.  Again...

That's not what I was talking about.  It's not something that worries me a lot, but I'm pretty sure there is language in a Rev Proc (?) that says an adopter (employer)  can't rely on an approval letter if the sponsor no longer sponsors the document (for that client, or otherwise).  Or words to that effect; I'm being imprecise.

The Rev Proc you cited, as well as the newer ones that supersede it, all talk about "maintaining" a M&P plan, requirements to inform employers of the need to amend the plan when necessary, record keeping requirements so you know who has adopted your plan, etc.  There is at least an implication (and I am 99% sure direct language at some point) that says/said that you can't rely on the opinion letter if the M&P sponsor discontinues its sponsorship.  The idea being that, let's say an M&P sponsor recognizes it made a mistake and needs to correct it.  They go to the IRS and get the correction approved, and the M&P sponsor then notifies all of its active adopters that the change has been made.  If you're no longer on their sponsored list, then your plan hasn't been amended, and it is potentially DQ's.

Ed Snyder

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I agree with you up to the point where you say (for that client, or otherwise).

There is a very big difference between an adopting employer that is "dropped" by a sponsor (or a sponsor that is dropped by an adopting employer) and an adopting employer of an abandoned plan. The Procedure does NOT describe the situation that you describe (unless you can find it, because I cannot).  In the absence of language in the Procedure that covers a situation of less-than-complete abandonment, I see no loss of reliance (under the previously quoted text in my previous response), nor the loss of preapproved status, which occurs only when a document provider completely abandons its preapproved plan, i.e., it abandons every adopting employer, in which case it has the obligation to warn employers that they do (indeed) lose preapproved status (unless the timely adopt another preapproved plan).

"SECTION 10. ABANDONED PLANS

.01 Notification to the Service - A sponsor must notify EP Rulings and Agreements in writing if an approved M&P plan is no longer used by any employer and the sponsor no longer intends to offer the plan for adoption. Such written notification must be sent to the address in section 20 and must refer to the file folder number appearing on the latest opinion letter issued.

.02 Notification to Employers - A sponsor that intends to abandon an approved M&P plan that is in use by any adopting employer must inform each adopting employer that the form of the plan has been terminated, and that the employer's plan will become an individually designed plan (unless the employer adopts another pre-approved plan). After so informing all adopting employers, the sponsor should notify EP Rulings and Agreements in accordance with subsection 10.01 above. "

Thus, if the preapproved plan has not been abandoned as described above, I still don't see the loss of preapproved status because the relationship is broken between the document provider and the employer (nor the loss of reliance if the adopting employer is still a word-for-word adopter of that still-preapproved non-abandoned plan).

 

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I understand the distinction between dropping a client and abandoning a plan.

Let me give you a real example.  My document provider, Fort William, had a PPA document approved in 2014.  Within a year, they found some errors and fixed them via corrective amendment.  We had to notify our clients who had already adopted the plan and provide the amendment.  A client who had been "dropped" would not get the corrective amendment and could no longer rely on the opinion letter.

Ed Snyder

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...Yes, I agree, but that loss of reliance is only because the dropped client is no longer a word-for-word adopter after that "special" amendment, not because the employer is a dropped employer. And only reliance is lost, not preapproved plan status, i.e., that employer gets to wait (though it is a bad idea) until Cycle 3 rolls around and restate onto a different provider's Cycle 3 document. The employer is not relegated to "true IDP" status under Rev Proc 2016-37 because the plan document, as drafted and adopted, was in fact a preapproved plan (and a word-for-word adopter) at the time of adoption. Had it remained an adopting employer, it would have retained reliance.

An amendment to preapproved language made by a particular document provider to its own product is different than a required interim good-faith amendment for a change in law. I agree that only a document provider can provide that document provider's "corrective" amendment for its own document, and that any "document-correction" amendment that is adopted on behalf of all adopting employers covers only then-adopting employers of that document provider. However, an adopting employer of that plan can use any source of inspiration when drafting good-faith amendments to timely comply with a change in law (or a change integral with a change in law) because those amendments are not amendments to conform to changes in a preapproved plan's preapproved language, but are good-faith changes that come (more often than not) without reliance as they reflect changes that the IRS did not review yet (but are nonetheless required). Thus, I still don't see any authority that suggests that a good-faith amendment to update a plan for changes in law or guidance must come from a particular document provider, and I still conclude that they such an amendment can come from anywhere without losing reliance on pre-existing preapproved language (if the employer is still a word-for-word adopter) and without losing status as a preapproved document within the meaning of IRS Revenue Procedure 2016-37.

But let's pretend I am wrong and that there is authority somewhere that such an amended plan does become a non-preapproved plan. Even that isn't the end of the world, since RP 2016-37 no longer requires a non-preapproved plan to be an "intended adopter" in order to adopt a preapproved plan (with that intention having been declared prior to 2016 via the now-obsolete Form 8905 that was used for that purpose prior to the end of the 5-year cycles). So, such a plan gets to go back onto a preapproved plan of its choice just as soon as it wants to, either now for PPA or later for Cycle 3. Arguably, its remedial amendment period doesn't end until the close of Cycle 3's restatement window, and so that hardship amendment that the employer acquired from Planet Nine, Inc. gets to be retroactively perfected at that time unless the amendment being perfected is not a good fit - which is why I suggested caution when shopping around. In fact, if the plan were to become a non-preapproved plan, then ironically, that delays the deadline for adopting required amendments (there's a 2-year lag under IRS RP 2016-37), so maybe the employer prefers to be a non-preapproved plan until a Cycle 3 document becomes available, so that it has a longer time frame for adopting a hardship amendment than if it were to retain preapproved plan status. Just a thought.

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15 hours ago, Doc Ument said:

...Yes, I agree, but that loss of reliance is only because the dropped client is no longer a word-for-word adopter after that "special" amendment, not because the employer is a dropped employer.

They aren't a word-for-word adopter because they were dropped (!).  TLDR (the rest).  You could be right, and I definitely was careless in my terminology. 

I could have restated twelve plans in the time it took to engage in this; which is why it's easier/better to just restate than to think/talk about it.

Ed Snyder

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8 hours ago, Bird said:

I could have restated twelve plans in the time it took to engage in this; which is why it's easier/better to just restate than to think/talk about it.

Well, I think learning the issues involved and the correct answer is the better choice, regardless that it took some time.  Because NOW you know how it works for the next time something comes up.  There is a substantial value to that, and the reason I spend so much time answering questions on this board for folks (especially since I already know most of the answers).

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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16 hours ago, Larry Starr said:

Well, I think learning the issues involved and the correct answer is the better choice, regardless that it took some time.  Because NOW you know how it works for the next time something comes up.  There is a substantial value to that, and the reason I spend so much time answering questions on this board for folks (especially since I already know most of the answers).

Huh?  What did I learn?

Ed Snyder

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Beyond considering what gets an employer some reliance under an IRS procedure, a TPA might consider which business practice protects the TPA.

 

If I understand TPApril’s originating query, a TPA might draft an amendment using neither the predecessor TPA’s preapproved-documents set nor the successor TPA’s preapproved-documents set.

 

If so (and assuming the TPA is not admitted to law practice, and would not present the amendment in any submission to the Internal Revenue Service), could drafting such an amendment be the unauthorized practice of law?

 

Even if one assumes no prosecution, should a TPA worry that, under the TPA’s errors-and-omissions insurance contract, the unauthorized practice of law is not within the professional services insured or fits an exclusion (perhaps for a crime or another violation of law)?

 

Conversely, if a TPA is an authorized representative of the sponsor of the preapproved-documents set the TPA works with, might proper use of that set be within the sponsor’s practice before the Internal Revenue Service?  (Under the U.S. Constitution, a State cannot forbid what Federal law authorizes.)

 

Might avoiding risks with the TPA’s insurance coverage be a reason not to draft an off-system amendment?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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