Plan did not allow part-timers to participate - new rulings?

[Guest FCB]

I have a 401k client with an age 21 / 30 day eligibilty requirement. They were not letting PT employees defer until they reached the 1,000 hour mark, which many nver reached. Once we discovered they were doing this we referred them to counsel.

The attorneys (a well-known, large firm in our state) told them that the IRS was preparing a new ruling that could reduce the cost to fix the problem my client has. Has anyone heard anything about a new ruling for correcting this type of operational failure?

Thanks in advance!

[E as in ERISA]

I've heard that the next version of EPCRS will provide better corrections on eligibility problems. Can't recall details.

It was awaiting final approval several months ago. But hasn't appeared yet.

[Guest FCB]

Thanks for the insight. The attorneys have also told them to hold off correcting until these new rules/regs/guidance/whatever comes out. We all know the IRS has its own timetable for doing these kinds of things, I'm a little uncomfortable waiting until new rules are finalized. It has already been 6 months since we brought this to their attention and the cost to fix this will continue to go up if they have to make up lost earnings.

I'm not going to tell them to disregard the attorneys but I don't want to be in a bad position as directed trustee either.

[Locust]

Seems sort of risky to me. Maybe the attorney had a conversation with an IRS rep who gave this advice.

What about an amendment to take care of the problem on a prospective basis?

[E as in ERISA]

Tell the client to ask the lawyer what the new correction should be. If I recall correctly, the new EPCRS may specifically say that you only have to contribute what people in their salary range were contributing instead of the average for the plan. Much less costly. So if these were $15000 and under employees and everyone in that range was contributing only 1% that would be a less costly correction than the plan's 3% average contribution. I can't promise that is what the proposed correction is. I didn't pay attention because it was something like this that the IRS already lets you do today. It's just not specifically stated in the EPCRS. But you can already negotiate for this result. So no down side to proceeding unless the final EPCRS is even better than the proposed. Not likely.

[Guest KFM]

I am skeptical that there is any such guidance in the pipeline. But there is a very good way of checking. Just go to Semiannual Regulatory Agenda of the IRS, which lists all such pending projects. You can find it at 70 Federal Register 27332, May 16, 2005.