Is there such a thing . . .

[Guest tintree73]

Is there such a thing as . . . a 401(k) plan adopted pursuant to a standardized prototype that is not required to cover all entities in the controlled group? I have an attorney telling me that this is possible (to have a standardized prototype that only covers some entities in a controlled group), and it goes against everything I have read. Please help!

[J2D2]

My understanding is the same as yours, tintree73. Has the attorney provided any citations that support his position?

[Guest tintree73]

Thanks for responding. The attorney is just looking at the documentation (the adoption agreement says "standardized plan" all over it).

The base document is used for standardized and NS plans and says that an Employee is an Employee of an Employer.

Employee includes all employees of an Affiliate in the controlled group (414(b)© and (m).

Here's the problem - the term Employer is defined as a Participating Affiliate. The definition of Participating Affiliate means an Employer that adopts the plan.

I think it might be a problem of the language (in the base plan) being used to be adopted by both standardized and nonstandardized adopters. Otherwise, he will not give me any guidance. Any thoughts?

[E as in ERISA]

It may be semantics. He may just be saying that a standardized prototype may be used in a non-traditional way. But that doesn't mean that it has the "protection" that is generally afforded the plan -- and that is what you are really getting at.

Ask him the question differently. Ask him if this plan has the protection of a standardized prototype when it only covers some entities in the controlled group. E.g., does the plan have the presumption of automatically satisfying coverage? Can the plan even rely on the opinion letter of the prototype -- or should it obtain its own determination letter?

[Guest tintree73]

Thanks for responding. There is documentation (this is a past problem we are trying to fix) showing that the plan was adopted as a standardized plan (letter from TPA saying we can rely on the opinion letter from the IRS - which shows standardized plan status, etc.). I also understand the argument that we lost the standardized protection because it may have had additional provisions that shouldn't have been there. I am just uncomfortable because it almost seems that they are now trying to argue that we never meant to establish the standardized plan. Is this form over substance (e.g., even if we thought we adopted the plan as a standardized plan - we didn't - so it doesn't matter if we thought we were adopting a standardized plan in the first place)? Or am I making a mountain out of a mole hill. Thanks again.

[E as in ERISA]

I believe that it is becoming more common for standardized prototypes to actually require all the members of the controlled group to actually sign on as adopting employers.

This actually helps in some cases. For example, if a big company is buying a little company that has a standardized prototype, they don't have to worry about all the employees of the big company being participants in that plan as a result of the merger. They take advantage of the transition period for coverage.

But its obviously more dangerous in other cases....

[Guest tintree73]

I see what you mean. But would if you argue to the IRS that the plan although adopted by using a standardized plan document, was adopted/amended in such a way that it lost its standardized status (therefore didn't need to cover everyone in the CG) - but that it remained qualified despite this problem? Would the IRS jump on the improper adoption and retroactively disqualify the plan?

[E as in ERISA]

No. The only impact is that it is not a STANDARDIZED plan. In other words, it's more like it adopted a non-standardized prototype and can't rely on the opinion letter for the prototype. It doesn't affect its qualification per se. But you probably also want to make sure you actually pass coverage, etc.

[Guest tintree73]

Thank you Katherine! I greatly appreciate your comments.