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I agree with what's already been stated: (1) the document controls, (2) the document most likely states that 3401(a) compensation is defined (with some tweaks not relevant to this issue) as income subject to federal income tax withholding, and thus would exclude the value of GTL (unless you make an adjustment in the plan's definition of compensation), and (3) that there needs to be authority in the plan to have a different definition of contribution for deferral purposes than for PS purposes (when that is to be the case), and (4) some plans allow the exclusion of "fringe" (non-cash) benefits (for deferral purposes only) via the boilerplate provisions. Even if a plan allows you to operationally exclude non-cash ("fringe") benefits solely for deferral purposes, it would not appear to help you, since you have selected 3401(a) compensation rather than W-2 compensation as the starting point in defining compensation for deferral purposes. I suspect that your document defines 3401(a) compensation using language substantially similar to IRS model language for that purpose (which follows the 415 regulation's definition of compensation), and if so, then the value of the GTL <must> be excluded for all contribution purposes unless you find a way to add it to 3401(a) compensation for PS purposes. It sounds to me like this particular plan would ideally use W-2 compensation as the starting point for compensation for both deferrals and PS purposes, in which case the PS will be correctly calculated with GTL included, and you presumably have a document under which you can either explicitly adjust compensation on the AA for deferral purposes (to exclude GTL) or you can find language in the basic plan document (or AA) that allows you to exclude GTL operationally. This assumes you do not have a document that allows you to start with W-2 for some sources and 3401(a) for others, which would be ideal (perhaps) for this employer. Assuming that you conclude that you have a problem, the problem for you wouldn't be that the deferrals would be a little "off" (resulting in a matching contribution that was a little "off"), it would be that your PS contributions would be a little "off" from what the plan language (presumably) prescribes. Even if you can pass the general nondiscrimination test (on a contributions basis) for the resulting PS allocations, if the employer is not following the terms of the document, it potentially has an expensive problem for that reason alone.

At the risk of stating the obvious, a plan that has the toothpaste out of the tube has more *potential* problems then having made distributions upon plan termination if such termination is nullified. For example, pretend that on the fictitious date of plan termination of 12/31/16, a calendar-year plan was up-to-date with all qualification requirements, but that a new law took effect on 1/1/17 with a required plan amendment required by the end of the first plan year beginning in 2017. A plan that timely distributes ALL plan assets as soon as administratively feasible (which I will refer to as "ASAP") will need no such amendment, i.e., the 12/31/16 date of termination will continue to "hold." Thus, the employer does not adopt that amendment in 2017. However, if either the employer or the IRS nullifies the termination date of 12/31/16, let's say in 2018, the plan can be retroactively disqualified not only because of any distributions that were made solely on account of plan termination in 2017, but also because my imaginary amendment was not timely adopted in 2017. In the case of an IRS nullification, I suspect that it may be too late for EPCRS. The employer (or advisor) must look for ALL the potential disqualification defects that might result from trying to put the toothpaste back into the tube. I am not suggesting there are always other reasons for plan disqualification, only that no voluntary decision to rescind a termination should be undertaken casually, especially one that is made "a couple years later." And on that point, Revenue Ruling 89-87, much like the DOL deferral-deposit rule, does not have a safe harbor period of time during which it is "safe" to delay making distributions (or deposits, in the case of deferrals). I think we agree that the DOL generally requires that if deferrals can be deposited by an employer in 10 days, then that the enforceable deadline is 10 days, not the proverbial middle of the following month. Similarly, if the IRS believes that all plan assets could easily have been distributed within one month, then a plan termination can be nullified by the IRS (and, in any event, is likely to be asserted) if distributions are not made within one month (see 2017 examination guideline excerpt below). The one-year period provided in Revenue Ruling 89-87 is worded such that if any assets remain in the trust after one year, the IRS will presume that assets were not timely distributed. However, no presumption (safe harbor) is made by that Ruling that suggests that assets that are distributed within one year have (in fact) been distributed ASAP. I interpret that Ruling as saying to employers that it would be best to not terminate a plan as of a particular date unless the employer believes that on that date of termination that (1) all plan assets can be and will be distributed ASAP after that date, and (2) there is no reason to believe (on the date of plan termination) that doing so will take more than one year. I believe all the above points were more succinctly stated in the 2017 IRS examination guidelines (which is the current IRS interpretation of the stated Ruling) as follows: "If a plan sponsor takes actions to terminate a plan but doesn’t distribute the assets as soon as administratively feasible, the plan isn’t considered terminated under IRC 401(a). The plan must remain qualified until it’s terminated. See Rev. Rul. 89-87 and IRM 7.12.1.8, Wasting Trust Procedures."

Revenue Procedure 2016-51 appears to provide for retroactive amendments (via SCP) for "early" inclusion only when the employer has overlooked the plan's eligibility or entry date requirements. The individuals you describe appear to have been been brought in early for some other reason (i.e., a non-adopting employer). For example, if someone in an excluded classification is inadvertently brought into the plan, that would appear to require correction via a full VCP application (if done via an amendment), and not via this SCP amendment provision. Also, although probably not at issue here, the SCP corrective amendment is not a free pass even for eligibility and entry date violations. For example, the group affected must also be "predominantly" NHCEs. It may be that others take a more expansive view of the following provision, and perhaps would amend under SCP for all early new entrants, regardless of the reason for the early inclusion. If so, I will not argue. I merely bring the exact language of EPCRS to your attention for your own evaluation. "(3) Early Inclusion of Otherwise Eligible Employee Failure. (a) Plan Amendment Correction Method. The Operational Failure of including an otherwise eligible employee in the plan who either (i) has not completed the plan’s minimum age or service requirements, or (ii) has completed the plan’s minimum age or service requirements but became a participant in the plan on a date earlier than the applicable plan entry date, may be corrected by using the plan amendment correction method set forth in this paragraph. The plan is amended retroactively to change the eligibility or entry date provisions to provide for the inclusion of the ineligible employee to reflect the plan’s actual operations. The amendment may change the eligibility or entry date provisions with respect to only those ineligible employees that were wrongly included, and only to those ineligible employees, provided (i) the amendment satisfies § 401(a) at the time it is adopted, (ii) the amendment would have satisfied § 401(a) had the amendment been adopted at the earlier time when it is effective, and (iii) the employees affected by the amendment are predominantly nonhighly compensated employees. For a defined benefit plan, a contribution may have to be made to the plan for a correction that is accomplished through a plan amendment if the plan is subject to the requirements of § 436(c) at the time of the amendment, as described in section 6.02(4)(e)(ii)."

As a matter of best practice, I agree I should have said a plan that appeared to require six consecutive months of employment without a 410(a) fail-safe provision could "potentially" have a problem.

As I understand it, if the document contains a 410(a) fail-safe provision of a year of service using the hours method, then this plan design is essentially the same thing as saying that the service requirement is the earlier of (1) a year of service using the hours method, or (2) six consecutive months of service. Such a provision complies with the hours method, and thus there is no service-spanning rule in determining this particular six-month provision. There are certainly preapproved plans with this design. A plan without a 410(a) fail-safe provision of one year of service using the hours method would have a problem.

I point out that other providers may take an entirely different approach, i.e., keeping the termination amendment as generic, permanent, and bare-bones as possible, and using other amendments for each change in law (with advice as to which were needed when). Don't overlook any discretionary amendments that might be needed upon termination, such as when the employer administratively added Roth deferrals in January and would, as an ongoing plan, have until December (for a calendar-year plan) to adopt the amendment, but, for a terminating plan, that amendment should be adopted on or before the formal date of plan termination. Note that the IRS correctly points out that compliance with the latest cumulative list does not equate to having a plan that is fully compliant on the date of plan termination. Pretend that one of the laws passed in December of last year required all ongoing plans to amend by 2020 for a new statutory provision effective for the first plan year beginning in 2018 (I did say "pretend" - but PPA would be a good example of such a fact pattern). Under this fact pattern, that law will not be included on the 2017 Cumulative List (if for no better reason than that the List would have been published before the law was enacted). A calendar-year plan terminating in 2018 would need that amendment on or before the date of plan termination. (For example, PPA amendments might not have been published by document providers until 2009 because Congress allowed ONGOING plans to wait until the end of the 2009 plan year to retroactively amend for all PPA changes, but a plan terminating in 2007 might have been affected by a PPA provision that became effective in 2007, and might therefore have needed an amendment in 2007, even if it did not need, at the time of termination, the eventual full "2009" edition that ongoing plans ultimately adopted in 2009.)

Even for a multiple employer plan, the IRS generally requires language in the document that an individual is treated as being continuously employed by "the Employer" if the individual goes from one adopting employer to another but UNRELATED adopting employer. Thus, I think any IRS-approved or preapproved plan will have language that would compel the employers to treat a transfer to any other employer that is related (I.e., within the controlled group or affiliated service group) as a continuation of employment with "the Employer," though not necessarily with language that is conveniently explicit (look first to the definition of "Employer"). And in the absence of finding such language, I would find the regulation(s) underpinning these usual provisions and interpret the plan accordingly. Although not on point, but going in the same direction, not even a terminating 401(k) plan may distribute assets related to the ADP requirements to the participant if there is another DC plan in the controlled group to which the funds can be transferred (there may be an exception if the other plan is an ESOP).

The first paragraph in WIFBR's follow-up is not dealing with allocation conditions; it is the fail-safe mechanism for ensuring that the service-based excluded class ends at the time prescribed by IRC 410(a), i.e., an employee forever ceases to be able to be a part-time employee (for purposes of the excluded class) once one year of service (for eligibility purposes, and using, presumably, the hours method) is credited. (The plan might mandate the hours method in this situation.) Thus, any employee who has a year of service will never (again) be able to be treated as part-time, regardless of their regularly scheduled hours. This 410(a) fail-safe provision is a common provision in preapproved plans, though you may need to dig for it, and not all providers will use the same language (though you should get to the same place). When the 410(a) fail-safe provision of one year of service is credited, you apply the plan's provisions for going from an ineligible class to an eligible class. The employee in your example never was in the part-time excluded class, and never will be. In other words, a service-based excluded classification is permissible only if you do not violate the 410(a)'s service requirement. Most plans will use one year of service universally as the fail-safe provision, though, I suppose in some contexts, a plan could impose a two-year requirement (e.g., for profit sharing eligibility if there is full and immediate vesting).

Although not exactly on point (in the case of a hypothetical offset), the language in any preapproved PPA cash balance floor-offset plan document is extremely likely to contain language similar to the following in the case of an actual offset of amounts allocated to participants under the employer's DC (exclusive of K or M allocations, which cannot be offset): The benefits provided under this Plan shall be no less than the amount needed to provide an accrued benefit under this Plan equal to the actuarial equivalent, at normal retirement age, of 0.5% of compensation for each year of credited service under this Plan. Rev. Proc. 2015-36 (section 16.03(7)(g)(vi))

Someone asked whether you can submit a Form 5307 at this time. Form 5307s can be submitted only during an applicable 2-year restatement window: Section 13.03 of Rev Proc 2017-4. I did not check to see if the RP 2018-4 also has that provision, but that requirement has been in that series of annual determination-letter Procedures for a few years, and I suspect it is in the current Procedure. Presumably you can ask for retroactive reliance on a modification when you submit your modified preapproved plan, in which case, you probably only want to do so for provisions where you are reasonably sure retroactive reliance will be granted. I have also heard of the IRS rejecting applications because the change was not significant enough, which is understandable on some facts, but I have no clear understanding of where they draw the line (assuming that they have a clear understanding of where to draw the line).

There is, FWIW, an example given in DOL Regulation 2530.202-2(e)(3) dealing with an obscure provision of that regulation (that I've never seen in a preapproved plan dealing with a computation period that is longer than 12 months, i.e., an "alternative eligibility computation period"), where the DOL indicates that the employer is to wait until the end of the computation period. Since that portion of that regulation is not dealing directly with the "year of service" as we commonly use that term (i.e., a computation period that is exactly 12 months long), and since it is only an example to begin with, I don't think employers should feel compelled to always use the end of the computation period. I suspect, though, that the reason why some documents are ambiguous is that many documents first originated during those early days after ERISA and that practitioners have "grown up" with the tradition of waiting until the end of the computation period (perhaps because the DOL suggested that as a possibility in that example). The principal reason for plan documents never having been clarified is most likely inertia. Someone above had an example of very good plan language because it contains the magic words "at the end of the eligibility computation period." Why else is this important? Because crediting eligibility is often different than crediting vesting. Most practitioners conclude (correctly, IMHO) that you grant the additional vesting at the point at which the participant is credited with the 1,000th hour. Why? Because no matter what happens between that point and the end of the vesting computation period, the participant will get that vesting credit at the end of the computation period. Especially if there is an immediate distribution because of a termination of employment after the 1,000th hour, the employer is better off just granting the vesting credit upon the 1,000th hour so that the entire vested account balance can be then distributed with no make-up distribution at year-end because the employer waited until the end of the vesting computation period to grant the additional vesting. In the context of eligibility, I think most employers want both the 12-month wait and the 1,000 hour, i.e., the employee doesn't get the year of service credit until the last day of the eligibility computation period so as to prevent employees entering sooner than that. In that case, it would be better if the document explicitly stated that, so as to distinguish how eligibility is determined as opposed to the 'practical" interpretation of using the 1,000th hour for vesting, regardless of when during the CP the 1,000th hour is credited for vesting. I don't think anyone goes to jail if they interpret an ambiguous document one way or the other for eligibility (or vesting, for that matter), so long as they do it the same way for everyone for the life of the plan (or until a clarifying amendment). This assumes the plan gives the fiduciary discretionary authority to interpret any ambiguity. As someone else pointed out, the problem with the original fact pattern given was that it was confined to the 1,000th hour occurring during the first 12 months without stating what happens after that point, which could well end up being a disqualification defect, not just an ambiguity. It should have been tied to the plan's eligibility computation period in some way.