return of deferrals to avoid a top heavy minimum?

[Guest MES]

A prospective client is telling us their ERISA counsel advised them to "undo" the deferrals for key employees, so that top heavy minimums would not be required. I've told the plan sponsor there are very limited circumstances for money to revert back to an employer. In my opinion, this is a mistake in law, not a mistake in fact, and the deferrals should have stayed in the plan, provided the plan document did not specifically exclude them from deferring. I have not however, had a lot of guidance to back me up. Anyone have anything more specific?

[rcline46]

Although I agree with you, if an attorney writes a letter directing you to perform certain actions in a plan, it is my belief that you are 'off the hook' if the IRS or DOL later determine the actions to be incorrect.

To bolster your position, a letter to the client stating your objections but that you will act according to their instructions would be most helpful.

[Guest Giovanni]

I agree with you, yet I have had clients to the same thing you describe against my advice.

[Alf]

Returning deferrals will disqualify the plan because it violates the terms of the plan and the IRS would see it as a prohibited cut-back in that the non-keys are entitled to the TH minimum and you are taking that away.

[david rigby]

I agree with Alf. This can be fixed prospectively, but the proposed retroactive fix likely will violate the terms of the plan and 411(d)(6).

[Guest hyper]

I agree, not a good idea to distribute assets from the plan, unless plan specifically allows (and I highly doubt it). Additionally, I don't think a letter from a lawyer gets you off the hook for performing tasks you believe are contrary to plan provisions, even if you are considered a "directed" trustee or recordkeeper under the plan and admin. agreements.