OK to amend plan to count "predecessor" service of new physician?

[Archimage]

I have a client that has brought in a new partner (medical practice). They want to bring in the new doctor as soon as possible. Is it possible to amend the plan to allow "predecessor" service for the practice where he came from? He would not have been an owner of that practice. I don't think you can but I wanted to make sure before I relayed this.

[Mike Preston]

I think you can do it. Of course, it would apply equally to all people employed by the same entity. If you have any doubt, bring up the issue in an LOD submission.

[Dave Baker]

The firm that sponsors the plan -- is it a partnership or a corporation (called a professional association in some states)?

The new physician's former practice ... was it a corporation? If not, what sort of entity?

I think it's important that the two entities be merged as a matter of state law (with the various formalities/documents), which unfortunately requires a takeover of both assets and liabilities by the existing firm.

Otherwise the IRS would wonder why this particular individual's service with some previous employer (even if named in an amendment to the plan document) is worthy of being counted but not the service of a non-highly compensated nurse (for example) who previously was employed by an unrelated hospital (which doesn't get the benefit of a special plan amendment).

Will any other individuals who worked at the physician's former practice also be coming over? If any such individuals actually come over and receive service credits too, that's awfully helpful in avoiding a potentially disqualifying discrimination argument from the IRS.

[Belgarath]

FWIW - we've had several such situations. In all but one, the only people who receive the "predecessor" service credit are H/C only. After telling clients the potential problems, and requiring a hold harmless where they certify they have consulted with legal counsel, we hold our noses and our breath, and submit for a determination letter. In every case, the IRS has never questioned it, and issued a determination letter with no problem.

Having said that, I still always hope I'll never see another one!

[mbozek]

B: isnt the reason why the IRS does not question predecessor service is that the determination letter only approves the form, not the operation of the plan? The only way the IRS will know who actually gets service for a predecessor employer under the plan in operation is if the plan is audited.

[KJohnson]

You may want to look at 1.401(a)(4)-11(d)(3)(i)© for rules regarding "pre-participation" service which seems to be your situation.

[Archimage]

What if a company wants to amend a plan to delete the predecessor service provision? Is this okay? Under the provision both HCEs and NHCEs have entered.

[Mike Preston]

Seems like it would be ok if the timing of the amendment was non-discriminatory. It is a benefits, rights & features issue. So you would look to 1.401(a)(4) regulations for guidance. I think I'd want the IRS to bless it before I'd tell the client that it is something that would definitely work.

[KJohnson]

Doesn't it become an accrued benefit as soon as you put it in the Plan? Don't you have a 411(d)(6) problem? I know there is a special rule for multiemployer plans under 1.411(a)-(4)(b)(5) but are there other exceptions?

[Archimage]

This would be a prospective amendment.

[KJohnson]

Then I agree with Mike. As he implies, you might want to check out 1.401(a)(4)-5 to make sure you don't have any timing problems.