"policy" in lieu of amendment to plan document?

[mariemonroe]

I have a plan that says all employees enter on 1/1 or 7/1 next following date of hire. There is no one year of service requirement. "Employee" is defined as anyone rendering services to employer other than leased employees.

Come to find out, the employer has been categorically excluding all part-time employees as well as several other categories of employees. When questioned about this, the employer says this is their "policy" and indeed this policy is found in several written materials which are periodically distributed to employees. Therefore, part-time employees and the other "excluded" employees are told from day one that they are not eligible to enter the plan. This has been going on for at least 10 years and probably longer

Of course the policy conflicts with the plan document.

Has anyone ever had any luck wtih an argument that a written policy as I have described somehow overrides the plan document or even acts as some sort of plan amendment?

[jpod]

I have never tried to make that argument under the facts as you described. While I have had a couple of VCP cases in which the IRS was receptive to the "scrivener's error" argument, that doesn't appear to be the situation you are describing. However, it seems to me that you have an overriding problem: you can't exclude people who are "part time;" that violates Section 410(a). You can require "part time" people to complete a 1,000-hour eligibility requirement while having no service requirement for non-part time people, but that doesn't sound like what was going on in your case, unless you can demonstrate that none of the part time people would have EVER satisfied a 1,000-hour requirement if they were subjected to one. If you can demonstrate that, and if you can somehow demonstrate that the plan document was not drafted in accordance with the employer's intent, you might consider a john doe vcp submission.

[QDROphile]

Subject to disqualification even if the policy terms were plan terms, as already noted, would it be beyond credibility to argue that the policy was a plan amendment? Yes, if the plan were submitted for a determination letter without the terms.

[ak2ary]

Look no further than the Microsoft case. Their plan excluded independent contractors, Microsoft had each employee that was characterized as a contractor sign an acknowledgement that they were not entitled to any pension or welfare benefits. Courts found that they were employees and that under the plain language of the plans they participate, regardless of the fact that they had acknowledged that they were not entitled to participate.

[Guest Kabert]

I doesn't look good. Sometimes plan sponsors look at a problem and say, ... better not to disturb a sleeping dog.

This may be one of those cases. I'd still:

- see if there were ever meeting minutes that dealt with exclusion of part-timers. (It's correct that a plan can't categorically exclude PTs, but it can exclude a reasonable classification of employees, such as temporary workers or seasonal workers.)

- see what the SPD says. Lots of courts have required plan sponsors to follow the SPD terms even where the plan terms differ.

- call someone in the IRS EPCRS group to run the issue by them (do you need to correct all the way back, or just a few years; would you have to correct for everyone or just those who'd have 1000 hours in a year?)

- figure out how many participants (PTs) this potentially affects (affected).

Letting the sleeping dog lie may amount to playing the audit lottery, but perhaps in a future restatement you can add in a clarifying amendment.

[Just Me]

We had the same problem with one of our clients. Went through VCP and made QNECs for all incorrectly excluded employees for all plan years since plan inception. IRS would not accept anything less. EE communications do not override a qualified plan document (unless it goes to court, and then you're at the whim of the judge).

Your client is not in a good place. I would not sweep under the rug and hope that no audit/employee complaint ever arises. Prospectively, you should amendment to exclude who you can (NOT "part-timers" as such, and NOT anybody already in the plan under the corrected method, etc.).

Good luck.

[John Feldt ERPA CPC QPA]

Of course, if you are talking about a 403(b) plan, and assuming you were only referring to the employer contributions, not the deferrals, then as Bob Architect (of the IRS) indicates, and I quote

"... it is the belief that this plan could be a subject of a number of items either stapled together or held together by a big paperclip."

So, just use a big binder clip, maybe add a sticker that says it is meant as a big paperclip (just in case) - and be sure to let us know how well received that is by the IRS folks.

[david rigby]

The relationship of the original poster to the plan/sponsor is unclear. If not legal counsel, I suggest two things:

- read interesting comments above, and

- get thee (plan administrator) to a competent ERISA counsel.