Waiver of Participation

[Lynn Campbell]

I have a Volume Submitter Plan for a cross-tested profit sharing plan document. The Plan is silent on the subject of waiving participation. An attorney involved in drafting the document has advised that I can let the client permit waivers, (2 employees have already waived as permitted by prior document) and that it is not necessary to have document language permitting waivers. Is this OK? If not, I need to amend the Plan and will take it out of Volume Submitter status... and have to submit by 9/30/2003. Thanks for your help!

[MGB]

The plan must state the conditions under which an employee becomes a participant in the plan. When those conditions are satisfied, the employees are participants. A waiver outside of the plan, that is not recognized by the language of the plan, cannot keep them from becoming participants. Therefore, the IRS's view is that the only way a waiver can be done is if the plan document specifically allows it. Sorry, I don't have any citation, but it seems to be fairly straightforward logic.

[Belgarath]

I respectfully disagree with the attorney if you are talking about a new waiver. You have a document which, presumably, specifies the eligibility requirements. Once an employee has satisfied those eligibility requirements, the plan has language specifying how a given contribution is allocated. If the plan does not somehow have a written provision for a waiver of participation, then allowing it will be an operational error in that the operation of the plan is not complying with the terms of the document. I'm assuming that these are current waivers - I can see a reasonable argument being made that a prior (valid) waiver which was irrevocable at the time is still valid. I'm not sure what position the IRS would take on this.

[RTK]

Regarding the waiver, I got involved specifically in an IRS audit where the Service took the position that waiver provisions are required in a document in order to have a valid waiver by an otherwise eligible employee. There is an ERISA to the contrary though - Laniok v. Advisory Committee of Brainerd Mfg. Co. Pension Plan, 935 F.2d 1360 (2d Cir. N.Y. 1991). Personally, I like the document to specifically state the an employee can waive or cannot waive.

[TPApril]

Although it's 15 years since this thread was discussed, I have a related inquiry.

Similar to above, there is a volume submitter PS plan with cross tested plan.  This plan clearly allows for waiver of participation prior to eligibility. Although it seems obvious to me, just curious how this affects coverage and nondiscrimination testing. By waiving they do not receive the gateway minimum, but they are included in testing?

[Tom Poje]

if they would otherwise meet the eligibility requirements (including entry date) they are treated as included and not benefiting for coverage purposes.

for ADP /ACP test they don't show because you only include those actually eligible to defer or receive match. (e.g. ignoring people who waive, if someone was eligible to defer but failed hours for match they would be on the ADP test but not on the ACP test)

for nondiscrim they show as a 0.