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Age/Service Exclusions in Pre-Approved Governmental Plan


EBECatty
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The FIS Relius pre-approved governmental 401(a) DC plan document includes the standard override when excluding temporary and part-time employees such that, if an employee in this group actually works 1,000 hours in a year, they become eligible despite being in a category of temporary or part-time employee.

The only source of this rule that I'm aware of is found in 410(a). Under 410(c), governmental plans are exempt from "this section," i.e., all of section 410, including section 410(a), not just 410(b) minimum coverage requirements. 

Is there some other rule that would require including this override in a governmental plan? Or might this have been just a design choice by the document provider? Or perhaps a provision the IRS required as a condition to pre-approval?

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We don’t know why a particular IRS-preapproved document includes that text.

But if using the document might state (or even purport to state) a provision a plan sponsor does not intend, the plan sponsor might reevaluate whether it is wise to use the document.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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A different document might be a solution; I don't know whether other providers include a similar provision. The handful of other pre-approved governmental documents I've worked with, including those from other vendors, have all been based on the same Relius document. 

More fundamentally, I guess I want to make sure this provision doesn't indicate that there is some other rule (aside from section 410(a) of the code) I'm missing that would require it to be included in a governmental 401(a) plan (pre-approved or otherwise). 

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If a document provider missed a point like this when designing a document for governmental plans’ use, one wonders what else the provider missed?

(Or if the IRS required this, one wonders what other inapt provisions the IRS required?)

Does the document state other provisions unnecessary for a desired tax treatment?

Does the document state provisions contrary to the user’s State law?

Does the document state provisions the user does not intend?

How much professional time would it take to find, and negate, the provisions the user does not intend?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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7 hours ago, EBECatty said:

More fundamentally, I guess I want to make sure this provision doesn't indicate that there is some other rule (aside from section 410(a) of the code) I'm missing that would require it to be included in a governmental 401(a) plan (pre-approved or otherwise). 

I'm not aware of any in Texas. I would be shocked if any state's laws actually addressed this, but of course you should check the law for the state you're in as well as any collective bargaining agreements, EBECatty.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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Peter, all good points. The remaining plan terms have never given us any difficulty in application. Most of our governmental plans are on individually designed documents, so this is the first time I've come across this particular issue, but it does raise some questions.  

Luke, it's not in our state's law either, and there is no CBA involved. I checked another blank governmental DC plan template sent to me by a recordkeeper that uses Relius documents, and it has the same provision built into the adoption agreement itself, so I'm thinking it must be in a default in the Relius document. 

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