Any Alternative Methods?

[Guest PBJ]

An employer excluded many temporary employees for a number of years. If the employer filed a VCP application and corrected by making corrective contributions the cost of such corrective contributions would be extremely expensive and beyond the company's means. In addition, the company is reluctant to make such corrective contributions because the employees would not likely have participated if given the opportunity.

Has anyone proposed an alternative correction method, under VCP, for the failure to include eligible employees?

Any ideas would be great!

Thank you.

[jpod]

Did the document exclude them? If so, would most or all of the temporaries never satisfy a one-year/1,000-hour eligibility requirement if that had been their eligibility requirement? If the answer is "yes," consider the possibility of VCP whereby you propose to correct the defect by retroactively amending the plan to permit temporaries to participate, but only if they satisfy a one-year/1,000-hour requirement. If there are few temporaries who would have satisfied that requirement, you would agree to make the corrective contributions for them (but only them).

This may or may not work. You might want to pursue this on a John Doe basis.

[Guest PBJ]

Thank you for your response.

It looks like the document did not exclude the temporary employees. Instead, what happened was the company adopted a standardized prototype not realizing that the employees of a controlled group member (which is the entity where all the temporary employee worked) were automatically included in the plan. The company did not realize this so of course it did not offer participation to the temporary employees. The company has 5 highly compensated employees and about 500 of these temporary employees. The service requirement to participate in the plan is 500 hours of services.

Can a retroactive amendment be made to requires a 1,000 hours of service for temporary employees only?

Also, someone mentioned that a proposed correction methodology could be to disgorge the tax benefits realized by the company relative to the participation by the HCEs by distributing the accounts of the HCEs and having the company pay an IRS sanction amount based on the value of the tax benefits received by the HCEs. I am not sure what all of this means...

I am sure it involves getting a waiver or agreement from the HCEs but assuming that they agree is this possible? Any ideas?

[401_4_ever]

Why not do a VCP submission with a retro-amend to remove the controlled group from the document? I have done that in a VCP submission and it is has been approved. That's a relatively common method of correction for this type of failure.

If I were an IRS agent looking at a retro-amend making a 1,000 eligibility for Temporary employees only, I would think that would be highly discriminatory, and wouldn't approve it. That's just me though.

[Belgarath]

The fact that this occurred, apparently, over a number of years is likely to work against getting a really favorable solution. If you are talking about the kind of money I think you are, I'd strongly recommend you take this to experienced ERISA counsel.

[Guest mjb]

were the temps employees of another entity such as a leasing entity? If so check the definition of compensation counted for benefits to see if it is limited to comp paid by the plan sponsor which would permit 0 contributions for the temps.

[Jim Chad]

This is a longshot, but you may want to double check the prototype. A lot of them have language about doing various tasks including all members of the controlled group. But usually, at least in my experience, the affiliated companies have to sign on to be a Participating employer.

If you pass testing without the employees of the companies with all of the temps, you would not need to make any corrections.

Who's prototype?