Belgarath

Rather shocking. We were asked to clean up a non-compliant plan. Just submitted an uncomplicated VCP filing in mid-October for failure to timely adopt a PPA document. Received IRS Compliance Statement already! Since I'm always quick to bash the IRS for taking too long, I have to give them kudos for doing this one so fast! Never had one turn around in 4 weeks previously.

Not sure I would either. What about a plan termination situation? I'd be more inclined to believe such a decision might be valid in such a circumstance.

Makes sense. Thanks. (Never really paid much attention to this aspect, since as I stated previously, we just use one document, but good to know!)

Just to play Devil's Advocate, what if the fiduciary made the decision that for terminated participants who have indicated that they will be taking an immediate distribution, their funds are segregated into something like a money market to protect them from short-term loss, under the theory that existing participants can recover from a short-term market loss, whereas the person taking a distribution won't have that "recovery" option?

Although this is a related topic, it is not connected to a different discussion I initiated in another recent thread. When we do our 408b-2 disclosures, we specify the amount/formula for any Revenue Sharing all in the one disclosure document. However, I believe it is acceptable under the regulations to have this in more than one document, as long as the required information/format is used. Just curious if folks out there generally combine all in one document, or use two or more. For example, a basic 408b-2 disclosure that has everything except the Revenue Sharing formula, and then referring to an attachment prepared/published by the mutual fund company that describes the specific Revenue Sharing amounts/formula/calculation?

RBG's suggestion - "Don't just pick the "right" answer, eliminate the wrong answers. The qualifiers will almost always eliminate a few answers for you " may be the best suggestion here on a multiple choice test. You know more than you think you do, and if you can eliminate a couple of answers, even your "guesses" will get you a much higher percentage correct than you would get from random guessing on the same remaining options. I took those tests more years ago than I care to contemplate, but if they haven't changed, it is easy to get tripped up on the format even when you do, in fact, know the correct answer. Things like, All of the following are true (or false) EXCEPT - make SURE you are picking the false (or true) answer - if you do it in a hurry, you can pick the first true (or false) answer you see, rather than correctly looking for the opposite. I seem to recall some double negatives, but they may not do those any longer, or maybe my memory is just faulty. Good luck.

So I do have a question - answer is not immediately apparent to me - let's suppose, as Kevin mentioned, that the 408b-2 disclosure from the TPA to the Plan Fiduciary did not adequately describe the arrangement. Is the PT (or potential PT) on the TPA or the Plan Fiduciary, or both? Or to really get into the weeds, suppose it was discussed with the Plan Fiduciary, but not put in writing? (I'm inclined to think this is likely to be meaningless, except perhaps in assessing damages in litigation, since the disclosure is required to be in writing...) I think the TPA involved needs to talk to ERISA counsel...but this discussion has been very helpful to me as I haven't really thought about these issues much for several years. P.S. - assume it is on the TPA, but not certain if applies also to Plan Fiduciary because Plan Fiduciary didn't adequately investigate or request more information, if disclosure wasn't specific enough...

The situation we were discussing was even simpler than that. There was no formula-derived payment/contract with/from plan. TPA was contracted solely with the Plan Sponsor for administrative fees. The contract/service agreement/whatever you want to call it specified that any fees billed to the Plan Sponsor would be reduced by Revenue Sharing paid to the TPA, if there is any. TPA received Revenue Sharing from the investment provider - which the investment provider provided automatically - nothing the TPA asked for. Then, as discussed, at some point the Revenue Sharing exceeded the TPA's normal fees.

Thanks - and the situation discussed doesn't fit into this category. It is a payment made directly by the investment company to the TPA - it is not an ERISA fee account or recapture account. Instead, the TPA, in its contract with the EMPLOYER (not with the plan) agrees that it will reduce the administrative charges billed to the EMPLOYER by the amount of any Revenue Sharing amounts received. And while as Austin points out the engagement letter, as apparently written, is weak in that it doesn't address the issue of Revenue Sharing in excess of normal charges, it still, IMHO, clearly would not belong to the Plan.

No, I don't think they do. I don't see how this can possibly be considered a plan asset. Very different from a plan where there is an "ERISA account" - the 5bps is being paid directly to the TPA by Investment Company X. Austin, would you feel differently if the engagement letter had clearly specified that any Revenue Sharing in excess of TPA fees charged to the Plan Sponsor would be kept by the TPA? If the Plan Fiduciary has done due diligence, and determined (rightly or wrongly) that the overall investment portfolio, expense ratio for the investment company, etc. is acceptable, then why should extra TPA profit be a problem? Granted that this is a bizarre combination of circumstances. You can see why the initial discussion went round and round...not sure there is any perfect answer (other than to avoid this situation in the first place).

This subject does make for interesting conversation, doesn't it? (Maybe only interesting to us ERISA geeks...) And it brings up some issues that weren't discussed - suppose the Revenue Sharing is paid directly to the TPA. Not to an "ERISA account" in the plan. If, as asserted above this excess is a "Plan Asset", the moment the Revenue Sharing exceeds the TPA fees, does this make the TPA a Fiduciary? Is the TPA then responsible for investing the assets under Fiduciary standards? If this has gone on for several years, does the TPA then owe interest to all participants for those years? Etc., etc. I'm inclined towards Austin's point of view - I fail to see that this is a Plan asset. But please, keep these comments coming! I'm going to pass them on to the folks who were involved in the original discussion.

WCC - thanks. It so happens that I agree that there is something "strange" about all this. This option you suggest (changing Revenue Sharing, or investments) was discussed, and the TPA said that this option was proposed to both the investment provider and the Plan Fiduciary, and the investment provider said that it wasn't an option for this particular program, whatever it may be. And again, the Plan Fiduciary has determined that this investment program is prudent, good, etc., etc... Now, the Plan Fiduciary may be making a bad call on all this. BUT, I'm asking purely from a TPA point of view - if the Plan Fiduciary is ok with it (rightly or wrongly) do you see a problem for the TPA if the TPA keeps this "extra" money? The TPA has (supposedly) disclosed this in great detail, and even recommended that the Plan Fiduciary consider whether this arrangement is reasonable. I haven't seen the various documents involved, for disclosures, etc., 'cause this was just a discussion and I'm not entitled to see those details, so I can't really give you anything more than what I've posted here. Thanks again. P.S. - I've tried putting myself "in their shoes" to think about what would be reasonable, and it scares the heck out of me, but I suppose I ultimately come down on the side of the TPA being able to retain the fees, where such arrangement has been fully disclosed and approved by the fiduciary. It just goes against the grain...

The information presented was that the disclosure did not address this issue. Whether this is accurate or not, I can't say, it was a discussion, and the actual disclosure was not presented. But for purposes of this discussion, let's assume it was not addressed.

An interesting question came up yesterday in a discussion with some other folks who are in the TPA arena. Suppose you have a TPA whose engagement letter specifies that Revenue Sharing paid to the TPA by the investment firm will offset TPA billings to the Plan Sponsor. At some point, due to asset growth, the Revenue Sharing paid to the TPA starts to exceed the amounts charged, so is basically placed in a holding account with the TPA. The Plan Sponsor is fully informed of this, and as a fiduciary is still happy with this investment arrangement. The amounts accumulating in the holding account start to become substantial, and the TPA is uncomfortable with this, and wants to change things to (a) get rid of the accumulated amount, and (b) prevent it from accumulating in the future. The gist of the discussion was that the TPA should issue a new engagement letter, so that the TPA would keep all future Revenue sharing fees, even if in excess of what would normally be charged. And the holding account will be used to offset fees charged in the future until it is depleted entirely, which will take, apparently, about 4 years. Plan Sponsor is apparently fine with this. A couple of questions were kicked around, however, which were interesting, and I'm soliciting opinions. 1. Is there really any reason why a new engagement letter couldn't simply say that the TPA will keep the accumulated revenue sharing immediately, as long as the Plan Fiduciary doesn't have a problem with it? In other words, does it have to be allocated over the next (x) number of years until depleted? 2. What happens if the client leaves? Wouldn't this money go to the TPA anyway, as it certainly isn't a Plan asset, or anything "belonging" to the Plan Sponsor? Seems to me that the solution proposed, while certainly reasonable, is more cumbersome than necessary? Anyone ever encountered a similar situation?

I've seen nothing official from the IRS, but here are the likely limits as I have seen them. No guarantees! Deferrals – 19,500; catch-up 6,500; comp limit 285,000; DC 415 limit 57,000; Key 185,000; HCE 130,000.

W-2.

I agree. Employers generally have a great ability to make your life miserable, even if they don't fire you. I think Jpod's point is well taken - just make darned sure you are prepared for the possible ramifications if you do pursue this. Is it worth it? Maybe, maybe not. Only you can answer that. I'm obviously not advising either way, and these are all just informal opinions on a discussion board.

No in-service distribution permitted at the NRA of either 60, or the prospective age 65.

I don't know why this is bothering me, but it is. ERISA 403(b) plan. If a plan has a NRD of age 60, and wants to amend it to age 65... Currently all accounts are all 100% vested at all times. In-service withdrawals are NOT currently allowed other than for hardship or disability. Allocation conditions for employer match/nonelective are NOT waived for termination of employment after attaining NRD. I don't much see the point in amending NRD to age 65, as it doesn't accomplish anything under the current terms of the plan. But if they did amend, is there any problem? I don't see a cutback of any benefit, but it just feels odd - anything obvious I'm missing?

Gracias.

Thanks Derrin. Does this apply ONLY to 401(k)? In other words is the 403(b) deadline still have a deadline of the end of the calendar year following the year in which the hardship provision changes were adopted? Or is this still TBD?

Thanks Peter. Probably my qualified plan background peeking through - for example, new salary deferral or distribution forms wouldn't suffice for a plan restatement on a 401(k) plan, so I never thought that what you describe might work in a 125 plan. But I expect the attorney will consider this - or perhaps not, if the advice is to "move forward and ignore the past." Of course, if this business is like most businesses we run into, they won't pay for legal advice anyway...

Wheee... just got an e-mail from someone who had adopted a Section 125 plan app. 20 years ago - it has never been amended or updated since then. Wanted to know "What happens" if they don't do anything? The truth is, I'm really not sure. I'm not even sure where to start to determine what "required" changes/amendments etc. would have been missed, and when. My assumption is that since there is no EPCRS equivalent for Section 125 plans, that for prior years, if any, that were "noncompliant" in terms of document language, the pre-tax deductions could be disallowed upon audit. Seems like all that can be done is to adopt updated document, and hope for the best for all prior years? Have them talk with legal/tax counsel re the possibility/advisability/risk of initiating some sort of settlement with IRS? Furthermore, do you know of any good source(s) for information to determine what updates were missed, and when? Thanks!! P.S. - as to the consequences of incorrect documents, I'm really asking if there is any guidance in addition to Prop. Reg. 1.125-1(c)(1) through (7)? And, what source(s) might one readily use to determine that dates and changes that may have been "required" for all those years - if such sources exist?

One of the checklist choices involves the age of the participant. Just put in 18, or 21, or whatever age a participant can become eligible for the plan. Also, if you want to allow in-plan Roth TRANSFERS, you have to complete the separate amendment request later on in the checklist. Now, I'm assuming this is the VS 401k in adoption agreement format. If not, then please ignore the above, and you'll have to peruse the specific checklist options for whatever document option you are using to determine how to do it. I suspect it is substantially similar, but I don't know, as I only use the VS AA 401(k) document.

FWIW - I haven't had this situation, so just my thoughts. Since it has been more than 6 months, I'd first contact the IRS to find out the status. If they say it should be assigned in a reasonable timeframe, I'd wait until it is assigned. Otherwise, I'd send the corrections, with a cover letter explaining the situation, and a copy of the entire original filing, since it may otherwise never get connected properly. I don't think you can utilize the new pay.gov procedure in this situation, where you have already submitted and paid. But once it is assigned and you have a specific agent to work with, you can ask them how they want you to handle. Others may have had hands-on experience with your precise situation, and give you specific advice on what worked for them. Good luck.