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I guess I'd look at it a bit differently, then. The fiduciary breach is just that - a fiduciary breach. With respect to the failure to follow the document is a "qualification" issue under the IRC - I would suggest it "depends" (I am an attorney...) on what provisions were not followed. For example, a plan document may provide for an appeal period for a denial of benefits, and if the plan sponsor doesn't follow that provision and ignores that provision in the plan, it is a violation of the terms of the plan document, but it is NOT a qualification issue (nothing in 401(a)(1) et swq.) indicates you must make follow that provision. You may have other issues (ERISA (non-qualification) rules, the fiduciary breach, a "quasi-employment" contract issue, possible an equitable issue) that might force you to correct the situation, but absent a violation of 401(a)(1) et seq., it isn't a qualification issue. It would still be an "operational" issue, but not necessarily a "qualification" issue. If however you violate a term of the plan documents that is REQUIRED by the qualification rules in 401(a) (coverage, the (k) and (m) rules, etc.), then your violation of that particular provision is a "direct" violation of the qualification rules - and you can be held accountable for that. The fact that you also violated the terms of the plan isn't relevant to the "operational" failure causing a qualification issue - which would have to be addressed. In any event, our advice to clients is "R.T.F.D." (Read The ... final ... Document) - and understand it).

Or as I had to tell a client this morning: You DON'T get what you refuse to pay for...

Depends upon the plan document being used. At least one of the "big" payroll companies that I know of has the 59-1/2 in their Basic Plan Document, so I doubt a change is allowed. The document I use does allow for it. But even if you lower the age or age/service for in-service distributions, Elective Deferrals, QNECs, QMACs and any portion of any Account used to satisfy the safe harbor requirements of Code sections 401(k)/(12) or 401(k)(13) and/or 401(m)(11) or 401(m)(12) aren't eligible for withdrawal until age 59-1/2 (or 59-1/2 and completes required service if age/service).

And tell your client: you get what you pay for.

A retirement plan, to tax-qualify under Internal Revenue Code § 401(a), must meet all conditions not only in the written plan but also in actual administration according to that written plan. The Internal Revenue Service’s Employee Plans Compliance Resolution System presumes the point; the Revenue Procedure defines an Operational Failure as one “that arises solely from the failure to follow plan provisions.” Rev. Proc. 2019-19, 2019-19 I.R.B. 1086, 1099 § 5.01(2)(b) (May 6, 2019). (Thank you, C.B. Zeller.) Unlike some other points made in the Revenue Procedure, this one cites no Treasury regulation as support for the point. Writers often say a plan must tax-qualify not only “in form” but also “in operation”. There are Treasury regulations and court decisions that support the in-form point. But I’m not (yet) seeing a regulation, court decision, or other law source that clearly states or supports the in-operation point. I’m hoping BenefitsLink mavens will teach me. Will you please help me?

I agree there is nothing that precludes depositing SH on a pay as you go basis. Payroll companies don't administer or consult, they process. One of them even has "Processing" in their name. So the client pretty much has to follow their process or leave. I suppose if one wants to push the issue, look to the definition of "Plan Administrator" and the language in the plan giving the PA the authority to interpret the plan doc. Assuming the PA is the plan sponsor, try pointing out to the payroll company that the PA has determined it is not prohibited and if they don't want to allow it they are exercising discretionary authority over the plan, making them an ERISA fiduciary. Sometimes the "F" word scares them, sometimes not.

Hi Peter - as you know, I am neither an attorney nor a legal expert. It does seem to me that Basch Engineering Inc. V. Commissioner clearly refers to a plan requiring compliance in both form and operation. This also provides links to Buzzetta and to Ludden, which say the same thing. Does this help at all? Excerpt from Basch below, as well as the Basch link which you can follow through to the others, if they are helpful "A qualified profit-sharing plan both by its terms and its operations must meet the statutory requirements. Buzzetta Construction Corp. v. Commissioner [Dec. 45,555], 92 T.C. 641 , 646 (1989). " https://www.leagle.com/decision/199054159ddtcm4821434

I don't know about a cite to IRC provisions or regs, but ERISA clearly makes following the plan documents one of the four fundamental "fiduciary" obligations (along with the exclusive benefit rule, the prudent expert rule,and the duty to diversify) in Section 404 (29 U.S.C. Section 1104). Failure to incorporate all of the provisions required for qualification in the plan document then would make it deficient in "form." Failure to abide by it's terms would be a fiduciary failure directly, perhaps indirectly (as a failure of the prudent expert rule - which implicitly (arguably) requires one to preserve the tax qualified status of the plan (as any "prudent expert" would). Hence, "operationally" a failure would be violative of these "fiduciary requirements" and otherwise a bad thing.... Not sure you need a cite to anything else....

A further point to consider if the plan is self-funded. A stop-loss insurance contract might not provide anything for a continuation that is not compelled under the public law (rather than the written plan's provisions) that applies to the employer and its plan. Lacking stop-loss insurance could leave an employer exposed to claims on what might be (through adverse selection, and perhaps other factors) a higher-risk population.

If group is insured, the carrier will more than likely say no. If self-Funded, they could but need to be cognizant of Section 105 discrimination. Not worth their time or effort.

But the Rev Proc is focused on VCP vs, SCP. You can make limited corrections under SCP, anything beyond that scope has to be fixed under VCP. Assuming that you can undo a deemed distribution once the 1099-R has been issued, it would be a corrected 1099-R. There seems to be some agreement that you could do it if the failure and correction happened after the April 19, 2019 date of Rev Proc 2019-19, but before that you are under Rev Proc 2018-52 and VCP is the only available correction. Yes, if it has been corrected there is no failure. If there is no failure there is no deemed distribution. If there is no deemed distribution there is no 1099-R. If you corrected under SCP, your other option is to formally correct under VCP. I don't think any custodian or provider would refuse to file a corrected 1099-R if the failure was corrected under VCP. The rev proc says that corrected deemed distribution is "not required to be reported on Form 1099-R". Could a provider insist on VCP rather than SCP? I think so since the DOL still requires VCP in order to issue a no action letter. I'll flip the question. If the tax reporter issued a 1099-R for a deemed distribution that no longer happened, can it refuse to issue a corrected 1099-R? I don't see how they could refuse. The only thing they could reasonably insist on is the method of correction since (VCP rather than SCP).