Retroactive amendments

[Guest mdduke]

In June, 2007, my company converted from a C-corp to an S-corp which changed our tax year from a fiscal to a calendar year. We failed, however, to amend our Safe Harbor 401K plan to reflect the change in the plan year. Can anyone shed some light on the best method to retroactively amend our plan document (SCP or VCP)? Thanks in advance for your help.

[rcline46]

You cannot amend retroactively. Amend for the existing or next plan year to have a short year. That is if your plan year begins any date prior to 9/11/08, you can now amend for a 12/31/2008 year end. If your plan year ENDS any date from 9/12/08 to 12/30/08, wait until the plan year starts and then amend.

It is not necessary to change the year end, but it will make life easier.

[Guest Sieve]

rcline is correct that the plan year does not have to be changed (of course, if the document defines the plan year as the employer's taxable year, then it has automatically changed with the employer's tax year change). If the document specifically identifies the plan year, and an affirmative action is required to change the plan year, I would make sure that someone determines the impact which a short plan year will have on all tests/actions before willy nilly changing the plan year--such as potential proration of compensation in the short plan year, and tax return/deduction issues, and changes in entry dates as per the plan's definition, and safe harbor notices, etc. Be careful, too, with regard to the limitation year definition and the impact on Section 415 which that change might have (and what determines the limitation year under the document--typically the plan year).

[Guest mdduke]

Thanks for the replies above. Our situation is extremely confusing to me. Our Plan Document states that our Plan Year coincides with the companies fiscal year, without specifying a date. However, the Adoption Agreement shows our fiscal year end as 06/30. Our current TPA claims the date on the AA requires us to amend this document and file a VCP to correct the plan failure. We would also need to do a 415 test and 5500 report for the short plan year. Next year thay would also require us to amend our plan document from a GUST to an EGTRRA document.

Another TPA, who we are considering switching to, thinks that we can immediately amend our plan document to an EGTRRA document and show the new Plan Year. They believe we could self-correct without filing a VCP. All we would need to do is file the reports for the short plan year as mentioned above.

I'm interested in hearing any opinions.

Thanks!

[Guest Sieve]

My 2 cents' worth . . . I don't agree entirely with either TPA.

If the Basic Plan Document says that the plan year IS the employer's taxable year, then I would say that the indication of the plan year in the Adoption Agreement is merely informational, and the plan document's plain language causes the plan year automatically to change when the employer's taxable year changes--regardless what the AA says. But, there's no operational violation, because all that happened was that some information on the AA has changed, and therefore VCP is not required. If this is the case, then the plan year already has changed: 6/30/2007 was the end of a plan year, and there was a short plan year from 7/1-12/31/07, and you may have some re-testing & amended 5500s to do--and I would, for sake of consistency, change the information (e.g., taxable year identification) shown on the AA. (Remember, some things on the AA are informational only--e.g., co. name, address, taxable year, type of corp., etc., and, in this case, the taxable/plan year.)

[ERISAnut]

It is really a non issue until the time the plan is amended to 12/31, creating a short plan year.

The key to realize here is the the "Fiscal Year End" is a term which is defined in the plan. This provision, itself, is typically an optional feature on the Adoption Agreement. Even if it is not, the adoption agreement defines that term (in this instance) as 6/30 of each year.

The adoption agreement further defines the PYE to be the fiscal year end (as defined in the adoption agreement). Therefore, until such time as the adoption agreement is amended to change the fiscal year end from 6/30, the plan year end will remain at 6/30; regardless of what the true fiscal year end is.

But, it is always best to keep this in mind. My angle is purely a document interpretation issue. In this instance, it is likely the responsibility of the Plan Administrator (typically the Employer as outlined in the terms of the plan) to interpret the provisions of the plan to ensure it is operated properly. Their interpretation does not have to be the MOST Reasonable, but must merely be reasonable and consistent (and not arbitrary and capricious). It may behoove them to simply amend to 12/31 with a short plan year and move on.

Sieve jumped in ahead of me again. But, the added loop is that the document also defines Fiscal Year (an informational feature as well). So it defines the plan year based on it's definition of the fiscal year. So, I would otherwise agree, but the language in the document defining the fiscal year end changes things.

[Guest Sieve]

(Sorry -nut . . .)

I would agree with ERISAnut that it most certainly begins at the plan interpretation level, and it depends on the interrelationship of the Basic Plan Document and the AA. But all BPDs and AAs are different, and it's difficult to answer this without seeing AA & BPD provisions re: definitions of fiscal year, taxable year, plan year, limitation year--and maybe plan amendment provisions.

But, if the BPD specifically refers to the AA for the appropriate definitions, then it probably will take an amendment to the AA to change the plan year. But I still don't see the operational violation here.

[Bird]

You might want to examine that language a little more closely to see if it properly interpreted as the same as the company's fiscal year at that time or always the same. It sounds like it's being interpreted as always the same, and if your current TPA is saying that, then I think it is fair to ask why a VCP submission is needed. That is, they're saying the plan amended itself, so why is it necessary to amend it.

Me, I'd look for a reason to say the plan's fiscal year is still 6/30, that is, if it's not crystal clear that the plan's year was supposed to change with the corporate year then that's better.

[Edit: I started this reply a long time ago and finally finished it and see multiple responses from Sieve and ERISAnut in the meantime...]

[ERISAnut]

But, if the BPD specifically refers to the AA for the appropriate definitions, then it probably will take an amendment to the AA to change the plan year. But I still don't see the operational violation here.

I agree. I do not see an operational violation either. The primary argument is the company changing the fiscal year end does not automatically change the plan, unless the plan is specific language referencing a term (i.e. fiscal year end) that the plan fails to define with a date.

As far as Bird's argument, I would suggest we are looking for a reasonable interpretation (not necessarily a proper interpretation). A proper interpretation would imply a hard-fast right or wrong. A reasonable interpretation would mean that the plan is being operated pursuant to a reasonable (while maybe not the best) interpretation; but in no event arbitrary and capricious.

[K2retire]

The original post also mentioned one TPA saying they have to wait to do the EGTRRA restatement separately and the other saying it can be done now. We are currently writing all of our new documents on EGTRRA and restating any that need to be amended at the same time. The firm telling you it must wait is really saying that they are not yet prepared to deal with it, or want to collect the extra revenue from making you do the two things separately -- not that there is some rule that you cannot do it yet.