Can a person irrevocable waive receiving a PS contribution?

[BG5150]

I saw in ERISA Outline where a person can make an irrevocable waiver of the right to make deferrals before she is eligible, and she wouldn't be in the ADP test.

I couldn't find anywhere if she would also not partake in the ER portion. ALso, would the revocation of rights apply tot he entire plan year, or just the plan year going forward?

[ERISAnut]

If the plan allows, an employee may make an irrevocable election not to participate in any plan of the employer (present or future). Once this election is made, such individuals will be excluded (by class). They will not benefit and will be counted as non-benefiting for 410(b). They will not be includable in any ADP/ACP tests as these only test employees who are eligible.

They will be non-excludable for coverage (410(b) and 401(a)(4)) but are ineligible employees for all other tests.

Hope this helps.

[Belgarath]

In this go-round (EGTRRA documents) the IRS would not allow us to have waiver of participation in the documents - neither in prototypes nor in volume submitters. In the GUST documents, they allowed us to have it in volume submitters.

I don't know what they required for everyone else... in the last round, it depended upon who you got for a reviewer!

[Guest Sieve]

Belgarath -- FYI, Corbel's EGTRRA prototype & VS still contain opt-out language--VS requires opt-out from all plans. Don't know why the reveiwing standards for prototypes wouldn't somehow be coordinated re: allowance or disallowance of certain provisions. (And, pray tell, who is "us"--if you'll share (or send me an offline PM).)

BY -- I think the opt-out has to be from all employer plans to be effective, but I'm not absolutely certain (someone else may want to chime in and agree or disagree with me, perhaps even with cites). If true, that which would preclude being in the PS portion and not in the deferral portion. In any event, the opt-out has to occur priot to being in the plan, so you can't opt-out after already being in the plan or being eligible to defer in the first place. And, of course, as pointed out by Belgarath, the plan must allow opt-outs or they can't be elected.

[Tom Poje]

my understanding is that Sieve is correct, the regs quite cleary say "to the plan and any other plan of the employer (including plans not yet established)"

plus, it can only be done when the ee is first eligible, all this according to 1.401(k)-1-a(3)(iv)

[J Simmons]

Belgarath -- FYI, Corbel's EGTRRA prototype & VS still contain opt-out language--VS requires opt-out from all plans. Don't know why the reveiwing standards for prototypes wouldn't somehow be coordinated re: allowance or disallowance of certain provisions. (And, pray tell, who is "us"--if you'll share (or send me an offline PM).)

In obtaining opinion letters for my own drafted prototype, both in the GUST and EGTRAA rounds, the IRS reviewers claimed that no prototypes would be allowed to have the opt-out language and that if I didn't remove it, they would not issue a favorable opinion letter. Both times, the IRS has allowed Corbel to keep the opt-out in its prototype and VS. At least the IRS is consistently advancing its inconsistency.

[Guest Sieve]

I thought there was an overriding principle in one of the prototype Rev Procs (maybe long ago) that wouldn't allow potentially discriminatory provisions to be part of a prototype, and the IRS used that to prevent opt-out language in approved prototypes (except for Corbel prototypes, of course).

[GBurns]

Why "except for Corbel prototypes" ?

What makes Corbel different ?

[ERISAnut]

Why "except for Corbel prototypes" ?

What makes Corbel different ?

Nothing. Each attorney submitting to the IRS includes provisions that would be appealing to prospective clients. I do not think Corbel is the only document with such provision. I would not be surprised if ASCi's new prototypes have the provision as well, since they are likely to mirror the FDP document.

[QDROphile]

I wonder if someone could clarify for me the difference between a one time irrevocable election under the 401(k) regulations (which is wht the original post appears to be describing) and the opt out that pops up in discussion from time to time on the boards. In particular, what is the basis for such an opt out, or is it just that nothing says you can't?

[BG5150]

The only thing I can find is making this election with respect to a CODA, not the entire plan. All the cites I'm getting are part of Treas Reg 1.401(k). Is there any place that discusses the Profit Sharing piece?

[Guest Sieve]

A. George -- I was responding to comments from Belgarath & John Simmons that their reviewer would not permit opt-out language in their prototypes and my comment that Corbel still was allowed to keep it in their prototypes. I wasn't trying to suggest that Corbel was the only prototype provider that was permitted to retain opt-outs, or that the rules didn't apply to them, but just that the IRS apparently is somewhat inconsistent in its application of its protoype standards to various document providers depending, perhaps, on the individual prototype reviewers.

B. -phile -- I believe that the opt-out 401(k) reg (Treas. Reg. Section 1.401(k)-1(a)(3)(v)) really is an update of the old rule/practice that allows limited opt-outs, and covers not only opt-outs but also opt-ins (such as into a PSP). The reg is saying that a one-time election (in or out) is not a COD election and does not produce either a CODA or a constructive receipt problem, but anything other than a one-time irrevocable action may be a COD election with all its consequences. I suspect--but do not know--that "traditional" opt-outs are a carryover from pre-ERISA days, and made sense for a number of years for some employees when the lax pre-ERISA anti-discrimination rules might result in a very small employer contribution for a rank-and-file employee who might do significantly better opting-out of the plan and being eligible to make a deductible IRA contribution. But those opt-out rules took on a different light once 401(k) plans and the concept of permissible income-shifting elections came into vogue. Just a big picture comment, which may or may not address your question.

C. BG -- I think the PSP piece is covered in the reg. when it talks about "the plan or any other plan or arrangement"--again, this goes to the constructive reciept issue (I believe).

[Tom Poje]

BG5150

oddly enough, for whatever reason, the one time irrevocable election is only found under the 401k regs as far as i know- but look at the examples under 1.401(k)-1(a)(3)(vii) in particular example 5 which is a money purchase plan!

[J Simmons]

Why "except for Corbel prototypes" ?

What makes Corbel different ?

I'm not sure why Corbel (or others) may get special treatment. In both instances--and I had different reviewers both times--I was assured that no prototypes were being allowed to have the opt-out feature. This latest go-around for EGTRRA, when I pointed out to the first assigned reviewer that such was what I had been told in the GUST round but then it turned out Corbel's prototype had it, the reviewer said he could not speak for what happened in the GUST era but assured me that no EGTRRA prototypes would be allowed the feature. Before my EGTRRA opinion letter was issued, there was a switch in reviewers and I ran it by him too. Same response. Maybe for the small prototypes the reviewers are told one thing, but for large prototypes the reviewers' instructions are different.

[Laura Harrington]

FYI: the ASCi EGTRRA documents [prototype and volume submitter] do not contain the opt-out language.

[Kevin C]

Tom,

(v) also mentions accruals under a DB plan.

So, I guess that means an improper waiver would turn a DB plan into a CODA?

[K2retire]

If prototypes are supposed to be designed to always pass 410(b), and an employee opting out could cause 410(b) to fail, it makes sense that no prototypes could have that option.

I remember seeing it in the Corbel volume submitter document, not the prototype.

[Guest Sieve]

I take back my earlier statement that Corbel's EGTRRA prototype has opt-out language (those double negatives get me every time unless I'm very careful). It merely protects earlier opt-outs:

"3.6 ELECTION NOT TO PARTICIPATE

"An Employee is not permitted to elect not to participate in the Plan. Notwithstanding the preceding, in case of a non-standardized Plan, any irrevocable elections not to participate in any component of this Plan shall remain in effect provided such elections were made prior to the date of the adoption of this restatement. An Employee who previously made such an election not to participate under the Plan is treated as a nonbenefiting Employee for purposes of the minimum coverage requirements under Code Section 410(b) and, if such irrevocable election applies to Elective Deferrals, the Employee is not an eligible Participant for purposes of the Actual Deferral Percentage test set forth in Section 12.4 or the Actual Contribution Percentage test set forth in Section 12.6."

So, I guess this time Corbel was treated like all others. John & my remarks of inconsistency simply will have to be directed to other areas of the IRS.

It's interesting to note, by the way, that this Corbel language seems to contemplate being able to have elected to opt-out of one part of the plan but not the other (i.e., not out of deferrals).

[J Simmons]

Another consipiracy bubble burst!

I agree with the IRS position as to standardized prototypes--they are to be 410(b) failure proof. However, in nonstandardized prototypes, 410(b) is yet an issue and can impose year end employment and up to 1,000 hours in the current plan year as benefit accrual requirements. So I don't quite see why non-standardized prototypes cannot have the opt-out feature, as they were permitted in TRA '86 era non-standardized prototypes (and Corbel's GUST era one).