What is the point in giving historical information about pre-amendment

[BFree]

What is the point in giving historical information about ADP/ACP testing in a GUST document?

If that information is not completed in a protoype and the plan is audited or submitted for a determination letter, what are the likely consequences?

Note that I am not saying that testing wasn't completed but, at this point, it cannot be determined if current or prior year data was used.

Thanks.

[Richard Anderson]

The point is:

SBJPA changed the way the ADP/ACP is performed; and the method used must be in the document, But, the remedial amendment period allows the plan to operationaly comply with the law, but not have to amend the plan until the end of the remedial amendment period.

Now that period is approaching and plans must now state in the document how they operationally complied with the law.

Someone should be keeping records for the plan. If the plan were subject to audit, I don't think that the IRS would be satisfied with "The ADP test was done, but we don't know the testing method that was used." Neither would it be acceptable for the document.

[BFree]

So, one point is to comply with the law.

I was wondering if there is some reason behind the requirement besides documentation purposes. There are many operational aspects of a plan that are not noted on a historical basis in the plan document, so this seems like a change to me.

Thanks for your response.

[rcline46]

Where in the LAW does it say the testing method (or top paid group either which is part of testing) is sacrosanct? You can disaggrate or use statutory exclusions, use component plans, all without putting that in the document, so what's the difference?

The IRS by REGULATION say it must be in the document. If I had deep enough pockets I would sue for a change in regulation. I don't think the IRS would win in court. Its plain foolishness.

However, if required in the document, they can get you for failure to follow the document and that is not pretty.

[Guest Robin Vatalaro]

I have another question about this. I have about three takeover cases that I will be processing GUST restatements for shortly.

In all cases, the prior TPA will not or cannot furnish copies of past ADP tests, thus I have no way of knowing if CY or PY was used as testing method. Primarily this problem is a result of a PEO going out of business and no PEO representatives being willing to or in existance thus able to furnish requested data. The clients don't have any reports at all.

All of these plans have been in existence for several years. Effectively I cannot properly complete the document because I am unable to document the past year's testing methods.

Would you simply decline the business because you can't properly complete the work? Would you guess what was done and complete the document accordingly, or would you leave that section of the document incomplete? Would the IRS, upon audit, take pity on the client based on the fact that the client diligently tried to obtain the info and could not?

Any help appreciated, thank you.

[Archimage]

Robin, I would require the client to furnish the information. If they still cannot furnish the information, I would require them to write a signed letter to you saying what method was used for each year. If they will not furnish that, then I would decline the business.

[BFree]

That still leaves unanswered the question of what are the consequences of not putting this information in the document.

I suspect that upon audit, the IRS would (1) ask for the information and (2) ask for back-up. At some point, (3) a fine is levied. That means that you may have to reproduce ADP/ACP for prior years. If you cannot get summarized results now, it may or may not be impossible to re-create those tests in a few years.

In any case, I don't agree that not having this information should be an automatic "disqualifier" for keeping someone as a client.

[Mike Preston]

Well, it may be unfortunate, but the fact is that the IRS considers inclusion of the testing method in the plan to be a qualification issue. So, when you say that there may be a fine, you are right. It appears the IRS, on audit, would put you into Audit CAP under EPCRS. Last I checked, the penalties weren't as severe as they were before the last version of the IRS correction procedure. But they were still bad enough that it makes absolutely no sense to consciously play audit roulette.

[BFree]

I agree - you don't want your plan to come under IRS scrutiny.

But let's remember who is playing audit roulette and where the question originated. The plan sponsor is the one who cannot come up with the data, and the plan sponsor is on the hook for any deficiencies.

The questions, here, are posed by document providers - in your experience, what have been the sanctions imposed upon document providers who provide an incomplete document? (Understand that document provider is working with all the information it can get from the plan sponsor).

[Mike Preston]

The sanctions are imposed on the plan sponsor, not the document provider. The only way the document provider pays is through a claim made by the plan sponsor that the document provider is somehow liable for the failure. It is precisely those clients that do not keep the records necessary to complete an accurate plan document that will tend to blame others.