Leaderboard

I have no doubt that the ability of plan sponsors to foul up their plans in new and innovative ways will continue keep us all busy for the foreseeable future.

I'd agree with you that logically if a standardized plan covers all members of a CG even with the action taken by just one member, that that sponsoring member should be able to amend the plan to fix it. HOWEVER, IANAA, but I've never been comfortable with the concept of a standardized plan automatically covering all members of a CG. I remember meeting a prospective client in California, a subsidiary of a Japanese parent company. I had a fairly extensive fact finder, such that they had to send it to someone in the parent company to get some of the information needed. Turns out this parent company had another subsidiary on the east coast, in a completely different industry, and neither subsidiary company knew of the other one. One of them already had a 4k plan with a payroll company. Fortunately it was a non-standardized document, but it could easily have been standardized. Then what? Can the omitted employees sue for benefits? Their employing entity never signed up for the plan, how can they be obligated? The parent? The other subsidiary? Seems like the corporate veil would likely protect them. Standardized is just a creation of the IRS for administrative purposes of approving plan documents. I've always wondered what would happen in court and how such a provision would be enforced. And if it can't be enforced, is it a plan at all?

Prior discussion, which leaned towards the conclusion that adoption of a participating employer agreement is an amendment, not a plan adoption: The safest way to approach it might be to have B adopt a new plan, permissively aggregate the two plans for testing, then merge them into a single plan later on.

Ahah. BTW, not in the urban dictionary. P.S., your legal reasoning is nevertheless excellent, IMHO.

I Am Not An Attorney. Also frequently written as IANAL (Lawyer). 🙂

Can you pass 410b utilizing average benefit test approach by increasing contributions to participants of A which would be done under 11-g correction? As A filed their return without any extension (and so did B), deductible for 2021. Also, which option for correction methodology was selected on FTW document, custom or based on the document provisions? Assuming that it can be corrected by VCP, can it be done by 10/15/2021 deadline (not sure if any deadlines imposed for VCP correction before a deadline)? Sorry if I missed these comments/suggestions and not being viable. Thinking out loud and curious.

Not helpful at this point, but perhaps interesting, the Securing a Strong Retirement Act that was introduced in the House a few months ago would add another subparagraph to 401(b) that allows retroactive amendments up until the plan sponsor's tax deadline. The SSRA includes lots of other goodies that testing nerds like us will love, including allowing otherwise excludable employees to be disaggregated for top heavy, getting rid of the rule that creates controlled groups when there is a child under age 21, and allowing sole proprietors to make retroactive deferral elections when there are no other employees in the plan. No way of knowing if this bill will actually go anywhere, but it at least shows that Congress is aware of these issues.

Yes, I suppose so. There is clear authority to adopt a plan retroactively without even invoking -11(g). There is no question adopting a new plan is permissible, the question is whether B adopting A's plan comes under this new authority. Ideally if -11(g) was being drafted or amended post-SECURE, it would address this. Section 201 of SECURE says "the employer may elect to treat the plan as having been adopted as of the last day of the taxable year." Who is the "employer" in this regard, each separate entity or the aggregated CG employer? Either way you consider "employer", adopting a new plan retroactively works. OTOH if you consider the "employer" to be the aggregated entity, it already sponsors the existing plan, which could imply that adding B is more of an amendment than an adoption. Of course if it is an amendment then why can it be done under authority of -11(g) (except maybe the deductibility is not retroactive?). But then if each entity is filing separate tax returns then maybe B adopting A's plan is an amendment for -11(g) purposes, but then B as a separate taxpayer can invoke 401(b) as amended and elects to treat its adoption as being done as of the last day of the year for deductibility. IMO it should work per my second paragraph, but it might need to be defended under exam, and if an employer has to fight the IRS on this they've already "lost" in terms of dollar cost, anxiety and distraction. So I'd advise a client in this situation to adopt a separate plan now to avoid the issue. But if I came across a client that did it the other way I wouldn't tell them it's wrong, I'd just explain there's no guidance, if you put the pieces together it should be OK, but the pieces came out at different times and IRS may not agree.

It just makes you shake your head sometimes...I don't know how many times I've wondered how these people get out of their driveway without hitting their own mailbox.

The due date of the 5558 is the due date of the original return. If July 31 falls on a Sat, Sun, or legal holiday, the return may be filed on the next day that is not a Sat, Sun, or legal holiday.

It would likely be more accurate than some data we get from employers.

My name is S. Derrin Watson and I approve of Ilene's message. I add that controlled group status unites two employers for all purposes of Code 401. That includes 401(b), where we find the new statute. And, for what it's worth, I don't take off my controlled group hat except when I go to church. 😀