katieinny

Of course, you are both right.

I have been looking at some articles lately, including examples provided by McKay Hochman, Derrin Watson and others that talk about the spousal exception (relating to attribution under the controlled group rules) not being applicable when the couple has a minor child because ownership is attributed to the child and that messes everything up. There are comments about that being the letter of the law, but not necessarily the intention. I have to believe that there must be a pretty large number of couples where each spouse owns his/her own (separate) business and they have at least one child. However, I haven't seen any write-ups about the controlled group status being enforced, and I'm pretty sure it's not because they are following the rules (yes, I'm a cynic). Has anyone heard the IRS make any informal comments about this, or has anyone seen it enforced? Or is this one of those things that's quietly swept under the rug and nobody talks about it?

An employer signed a lengthy PPA amendment that included the 436 language back in 2009. I was just reminded that there has been an extension on the 436 amendment until the end of 2013. It seems weird to me that this thing has been extended year after year. Or am I missing something? Is there new 436 language that needs to be adopted and the employer needs to sign another 436 amendment?

Yes, David, I guess I should start researching governmental plans next. In answer to My 2 cents, in the only situation I saw where a for-profit corp was trying to sell their business with an underfunded DB plan, the company was not able to sell until they could resolve the DB situation. Last I knew, they were looking into a distress termination.

I'm used to the for-profit world where an acquiring corporation is usually not interested in taking on the selling corp's retirement plan. In the cases I've seen where assets are being purchased, the seller agrees to terminate the plan (typically a 401(k)) and distribute the assets. The buyer takes on the employees as new hires. The new hires evenutally meet the buyer's plan eligibility requirements and enter their new employer's plan. Sometimes prior service is counted, sometimes not, depending on if the new employer doesn't mind including these new people sooner rather than later in its retirement plan. But I'm feeling like a fish out of water with this not-for-profit situation. I'm hearing words like "obligations of the Successor Employer" and some people speculating that the acquiring employer cannot refuse the DB obligations of the County facility's severely underfunded pension obligations. They have yet to determine the funding status of the other not-for-profit facility's DB plan, but it's probably not good. Is the not-for-profit world different, meaning that the acquiring not-for-profit might be forced to take on both facilities' DB plan obligations? Or are there situations when it can be avoided, and if so what types of situations?

A plan participant completes beneficiary forms for the company's retirement plans, then dies a couple of years later. The company says that because the validation form that was sent to confirm the named beneficiaries was not returned, the plan assets must go to the participant's estate. I suppose the named beneficiaries can hire an attorney and appeal. Is getting a second form to validate the first form becoming a trend, or is this company out of line?

shERPA: Yes, I guess I focused in on Section 2.07 of Appendix B for some reason and suddenly I had blinders on instead of thinking of it as simply an operational error and getting on with it. I have suggested that the employer amend the plan going forward just in case this happens again.

Thank you for your replies. They will help me formulate my comments to the employer.

PensionPro -- as a matter of fact, the rolled over dollars are being distributed because the employee has already terminated service only a few months after being hired. But, I didn't think that changed the fact that the plan needed to be amended to permit the rollover in the first place. Since the assets are being distributed anyway, are you saying that that takes care of the matter and I'm overthinking this whole thing? Just get the assets out and be done?

Okay, QDROphile, you're right -- but I wonder if others might make executive decisions in their practices to self correct this type of error, especially since a hardship feature or a loan feature can be amended into a plan under the self correct program. My thought is that adding the ability to rollover money into the plan is just as innocuous. The VCP filing fee is one thing, but by the time the employer pays somebody to prepare the filing, we could be talking money way out of proportion to the problem. At some point, common sense should prevail. So, I was wondering what other practitioners might do in this situation. However, I asked for their thoughts, when I should have been more direct with a "what would you do?" type of question.

In 2012, an employer permitted an employee to roll assets over from her previous employer's plan. Somebody just realized that the plan document does not permit rollovers. My initial thought was that this can be self corrected under EPCRS by amending the plan. But after reading Rev. Proc. 2013-12, Section 4.05(2), rollovers are not mentioned in Section 2.07 of Appendix B which means that the employer must go through the VCP correction program. Does anyone else think that this is a bit extreme for this type of error?

John: Yes, I think it helps. Thank you for your response. I guess we're kind of in limbo now because the employer has not been "asked" to enter the Audit Cap program yet. Until he is (if he is), there won't be a calculation to determine what the maximum payment amount would be. Bottom line is that he needs to provide the data going back to 2006 and see if the errors rise to the point of steering him into that program. Then the negotiations can begin. He needs to stop digging his heels in because he believes the IRS can't go back that far and start digging out paperwork instead. He'll have to cross the penalty bridge later.

John: Your comment about the maximum penalty caught my eye. It's already been established that one or more corrections need to be made for the period starting in 2010 and ending in 2012. So, if the same or a different problem were discovered during the 2006 through 2009 years, it would make sense that the employer would have to make whatever corrections are required to make participants whole -- but he doesn't have to worry about problems during those years adding to the penalty. Am I understanding your response correctly?

During a random audit, the employer was asked to provide plan information for 2010, 2011 and 2012. Anomolies turned up and the employer knows that they have to be corrected, including any additional contributions, earnings and penalties. Then the IRS said that they would like information going back to 2006 -- 7 years ago. I thought that 6 years was the limit, unless they can make a case for fraud. Is the 6 year limit just a guideline that doesn't really mean much?

It happened to two different participants on two different dates in 2012, so I agree that self-correcting under EPCRS satisfies the IRS requirement. But I hesitate to take a short cut and not do the DOL filing, even though the earnings, no matter how they are calculated, will be a small amount. I can leave it up to the client, I suppose. I very much appreciate your thoughts. There's no one in my office to bounce things off of, so it helps a lot to be able to do that here.

Since the correct participants didn't get the funds on time, and earnings are due to both, I would think a VFCP filing would be required. Do others agree with BG5150, that a VFCP filing is not necessary?

I was talking with our client's representative at a well-known investment company's retirement department. They will be helping our client make a correction to a couple of errors that occurred last year relating to employee deferrals. (The client's spreadsheet was off a line, so a deferral from one participant went into the account of the next participant on the spreadsheet.) We talked about VFCP and I asked if they would prepare the submission to the DOL. She responded that this is a voluntary program, the correction is made and documented, but nothing is submitted. What? I guess it makes sense now why I felt like her side of the conversation meandered back and forth between the EPCRS Self-correction program and the DOL's VFCP. I was having a hard time keeping up, even though I've been doing this stuff for a long time. Even her e-mail communication to the client was lengthy -- and very disjointed, discussing both EPCRS and VFCP interchangeably, which was why I wanted to have a verbal conversation with her. Stuff like the withdrawal part of the transaction comes under VFCP, but the deposit side comes under EPCRS (or visa-versa -- my head was spinning, so I'm not positive which way she said it). So, now I'm starting to second guess myself. We do need to submit an application to the DOL when we use VFCP, right? And, when she talks about the deposits and withdrawals to make the correction coming under different programs? Holy cow. Where have I been? If you tell me she's right, I'm putting in my papers because clearly, I shouldn't be doing this any more.

Thank you both for your replys. Both plans have written plan documents. I'm going to take a closer look at how the match works. I believe that EEs contribute to the non-ERISA plan until they become eligible for the match, at which time they start contributing to the ERISA plan up to the amount needed to get the maximum employer match. Anything over the amount needed to get the maximum match continues to go into the non-ERISA plan. However, it sounds like I had better check to see what happens if some EEs resist switching over to the ERISA plan and insist on continuing their contributions to the non-ERISA plan with the match going into the ERISA plan. That could be the rub.

I attended a seminar quite some time ago on 403(b) plans and recall the speaker saying that if the employer (in this case a college) maintains an ERISA and a non-ERISA plan, it is likely that the non-ERISA plan will automatically be subject to ERISA due to the existence of the ERISA plan. However, it didn't sound at the time like this was a rule written in stone. It was phrased similar to "it's been speculated that....." In the meantime, the plan has continued operating as a non-ERISA plan. Is there some definitive source that would tell me if indeed the presence of the ERISA plan has "tainted" the other plan and caused it to inadvertently become an ERISA plan? I hesitate to think about the can of worms this might open, such as having to file several years' worth of 5500s, etc.

Hmmm, I see your point. We'll have to think about this a bit. Thank you.

I've been looking through the BNA portfolio on ESOPs to see if there's any mention about an ESOP owning life insurance on a Key EE, but so far no luck. Does anyone have any experience with this?

Yes, I'm getting that advice locally, too. Distribute the assets to the sole participant (which is a substantial amount, by the way), pay the tax and let it go. Another option offered was to hire a well known ERISA attorney with close ties to the IRS who might be able to negotiate a settlement. Between the amount he pays the attorney and the settlement, at least half the balance will be eaten up. I guess I can offer both options to the guy and let him pick. Thanks for your input.

I know there are probably hundreds (thousands?) of plans out there just like this, but I can't see how a VCP filing is going to even come close to fixing this. I'm less concerned about the ancient document, because I think the IRS has addressed the non-amender issue. I'm more concerned that we can't go back to see if there were employees who worked enough years/hours that should have been covered. Then, we've got to beg the DOL to forgive the lack of 5500 filings, and there is no DFVC program for a one-person plan that probably shouldn't have been a one-person plan anyway. I'm afraid of opening a can or worms. I would love to hear how other retirement plan professionals would handle this.

I decided to check my ERISA Outline Book -- Plan Distributions chapter, Special rules for plan termination. The implication there is that plans with annuity options, or where the employer maintains another DC plan (this plan comes under both) doesn't have the same options as a plan with no annuity option. As you have already suggested -- assets that are TRANSFERRED must have the same optional forms of benefits. In any case, the ER has elected to terminate the plan, not merge it with other plan, so no forced rollover.

Yeah, I suspect you're right, although I know that other ERs have forced the rollover when there's been another plan to roll the money to. But, of course, that doesn't make it right.