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401(a)(26) failsafe removed in PPA pre-approved document


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The EGTRRA volume submitter DB plan had a failsafe provision that covered both 410(b) and 401(a)(26) failures. The PPA document only addressed 410(b). I couldn't find any guidance from the IRS in the Cumulative List that addressed this change. Does anyone have any cites or guidance as to why the reference to 401(a)(26) was eliminated from the VS document?

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Are you sure, and what platform do you use? Our FT William adoption agreement has the following:

6.      Method to fix Code section 401(a)(26) and section 410(b) coverage failures:

a.      _   Corrective amendment under Treasury Regulation section 1.401(a)(4)-11(g).

b.     _   Apply Section 4.01(c).

Personally, we prefer to use 11g amendments rather than be locked into a specific failsafe action.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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If you actually read section 4.01(c) in the FT William basic though, the fail-safe described there doesn't make a lot of sense with respect to 401(a)(26), especially for the meaningful benefit part of 401(a)(26). Their EGTRRA document allowed you to specify a target benefit accrual (usually 0.5%, as per the Schultz memo), and if 401(a)(26) failed, you would increase benefits starting with the participants whose benefit accrual was the largest but less than the specified target amount. The PPA document says nothing about any target amount and instead says that you start by expanding the group of participants to include employees who would not otherwise be eligible.

I am with Dalai Pookah on this, I am curious why the old fail-safe was removed in the PPA document as it provides a more sensible default method for correcting a failure. We asked FT about this back when the PPA document came out, but did not get a satisfying reply - they said, basically, they did not think the IRS would approve their document with that language in it.

Like CuseFan, we have moved over to relying on retroactive corrective amendments when needed. However that comes with its own issues, including compliance with 1.401(a)(4)-11(g), 1.401(a)(26)-7(c), 436(c), and 412(d)(2).

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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We are using Relius Volume Submitter documents. The EGTRRA version clearly labelled the section 401(a)(26) and 410(b); the PPA version only referenced 410(b). I would agree that, in practice, -11g amendments are preferred. In this case, we are dealing with a frozen plan that was non-compliant with 401(a)(26) in 2010-2013. We will need VCP to correct. To me a retroactive amendment to apply the fail-safe would not lead to a question of whether the plan was unfrozen during that period, then needing to be immediately refrozen to protect SECURE Act reliance on frozen plans. (possibly TMI 😉)

I couldn't find any reference in the Cumulative List or other guidance that would require this change.

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