Use of Retroactive Wrap Plans to Fix Filing Problems

[401 Chaos]

I just posted this on the Welfare Plan Board in response to another topic title but thought I might post here as well to see if others had thoughts.

I have in the past had a couple of occassions to retroactlively adopt wrap plans in order to limit the DFVC filings required for plan sponsors who have never filed Form 5500s. I too have never had any objections from the DOL. In fact, one time I called the DFVC hotline and asked them directly if they had any problem with the use of a retroactive wrap plan in such situations and the person on the other end said no without any hesitation. (While I suspect the person answering the phone is admittedly not a DOL policy maker, it seems other DOL representatives have informally indicated that retroactive wrap plans can be used.) Although the use of retroactive wrap plans has always struck me as a bit suspect and not above challenge, it clearly appears that many plan sponsors have done this without issue.

I now have a client who is in a different situation. Basically they have filed a single Form 5500 for all their welfare plans for the last 10+ years or so as if they had a wrap plan in place. (I think they thought their cafeteria plan was a wrap plan which it is not.) Everyone is in agreement that the filings are not technically correct and that a wrap plan is needed going forward. However, when I suggested that they retroactively adopt a Wrap Plan to try and address the prior filings, their benefits broker (an experienced broker with a large national group) said they did not think you could retroactively adopt a wrap plan and did not think that would legally help the situation.

If anything, it seems to me the use of a retoactive wrap plan is is less offensive in this type setting than the use of retroactive wrap plans in a DFVC context since at least the plan sponsor filed a return and disclosed the information. The national consulting group did not reference any recent changes or developments on the retroactive Wrap Plan front--they just did not think anything could be done retroactively outside of the remedial amendment period. Again, I don't view retroactive plans as ideal either but they do seem to be accepted by the DOL in my experience.

My questions are as follows:

1. Has anyone encountered any problems or resistance from the DOL with use of retroactive wrap plans or seen or heard of any change in the DOL's position on use of retroactive wrap plans since the original post?

2. Anyone see any problems with the use of a retroactive wrap plan to conform to prior 5500 filings without a plan in place as compared to the use of retroactive wrap plans as part of a DFVC filing?

3. If a retroactive wrap plan may work--and, again, I agree it is not perfect but seems like a solution that is worth trying giving the alternatives--does it not make sense to go ahead and put a retroactive wrap plan in place now rather than waiting to see if there is ever a need to produce the plan document and then attempting to put one in place in the midst of a DOL audit, etc.? (Seems to me even though it is late, the "less late" it is adopted, the better.)

4. Finally, if you are going to do a retroactive wrap plan in this type of setting, is it legally necessary to take it all the way back to the beginning of the plan or could you argue that only the 2003, 2004, and 2005 years are techncially open and need to be corrected since a 5500 filing has been made (or is about to be made) for each of those years. While it is tempting to take the wrap back all the way to inception, the benefits provided under the plan and the insurers involved, etc. have changed considerably over the past 12+ years and it would be much easier to only try to get an accurate wrap document in place for the "open" years assuming earlier years have closed.