OK To Terminate with GUST Document?

[Dougsbpc]

Have a small DB plan with about 30 participants that we took over about 5 years ago. The plan will terminate soon. If we submit for a DL, must we restate the document for EGTRRA first? Usually, we would have no problem restating with our volume document.

The problem is the plan has a 100% J&S normal form of benefit. Our EGTRRA volume document only allows for a single life normal form but many optional forms and the ability to modify the QJSA to 100%.

The EGTRRA document has a provision that allows us to designate protected benefits other than those described in the plan.

If we must restate for EGTRRA, perhaps we can designate the 100% J&S normal form as a protected benefit under the plan.

Anyone see any problems with this?

Thanks a million!

[John Feldt ERPA CPC QPA]

"If we submit for a DL, must we restate the document for EGTRRA first?"

No, you are not required to restate. However, you must adopt all remaining good-faith amendments needed to comply with current law (such as HEART and WRERA, etc., including IRS Notice 2010-15). I would not recommend doing a restatement as long as you are submitting a Form 5310 to get a final D letter.

[Dougsbpc]

Would you not restate because of the extra time/work or because of the single life normal form in the new document?

[John Feldt ERPA CPC QPA]

Neither.

I would not restate because the purpose of a restatement is to benefit from the IRS reliance that is provided within a pre-approved restated plan document. Since you intend to submit to the IRS (Form 5310) for a determination, then you will get that reliance regardless of whether or not you restate. They will look at the plan and tell you if any additional language is needed or if any good-faith amendments need to have language corrections.

If you restated this DB plan to an EGTRRA prototype or Volume Submitter document, that document's reliance only covers the LRMs from about 2006 - meaning all amendment language done after that is still open for IRS scrutiny anyway, so there's no reason to restate the plan now.

Plans are not required to restate, ever, if IRS reliance on the plan language is not being sought. Shocking?

[carrots]

If you file a 5310 and the IRS finds a problem with the documents (missed amendment, say), do they just tell you to add the amendment or do they say, "Gotcha! You are disqualified!"

[Dougsbpc]

Generally, they tend to allow you to execute the missed amendment now. This because you are voluntarily asking for approval. I have found them to also allow for correction of minor operational errors. Never had a major one. That might be a little scary.

We actually have a small terminated DB that we will be submitting that kept their normal retirement age at 58. It will be interesting to see the fire that will draw. In their case, the average retirement age in their industry is below age 58. This according to several independent online sources. Even so, it might be challenged. All we can do is provide copies of the independent sources and remind them that this should be considered a good faith interpretation of the typical retirement age in their industry.

[Guest Sieve]

My experience in the last few years has not been as it was in the old days when it was common for the IRS to just let you currently adopt any missing amendments when the plan was being reviewed for an FDL at termination. On at least 2 recent occasions, I had to argue vehemently to allow a missing or unsigned amendment to be adopted currently, and neither time was I successful--once it resulted in a much too large financial penalty. Now that EPCRS has a penalty schedule for missing required amendments when discovered by the IRS during an FDL review, you should be very wary of not updating the plan, or not going in contemporaneously under VCP, if there are missing or undated amendments.

[Dougsbpc]

Sieve is right about this.

You always want to make sure you have everything in place before applying for the DL. Then if you discover something missing, VCP is the way to go as he mentioned.

When I was read the question, I thought about the few times over the many years when the IRS did allow correction. At the time, we thought we were in big trouble but then were allowed to correct. I remember speaking with an IRS agent who explained that they were in no way condoning the practice of missed amendments, but would allow current correction because we were voluntarily applying for a FDL. However, those cases were more than a few years ago and with EPCRS so well established now, they are likely much less forgiving as Sieve explained.

[John Feldt ERPA CPC QPA]

Absolutely.

You must have the good-faith amendments adopted by their deadlines. Any deficiency within any of those amendments can still be corrected during the D letter review, but the complete absence of the amendment does not allow you to claim that it was adopted in good-faith, and is instead called a "late amender" or "non-amender" which is specifically handled via VCP under EPCRS.

If an amendment deadline has not yet occurred, for example the 12/31/2010 deadline for some of the HEART stuff, you could submit a proposed amendment that has not yet been adopted, but be careful about that deadline - I prefer to have those amendments adopted before the date of plan termination anyway.

If a good-faith amendment was required but not adopted by the deadline, and it's discovered by the IRS during the D letter application process, the IRS "fee" is less than the sanction they would charge if it was discovered instead during an IRS plan audit. Sometimes the IRS has a special discount sales price when those are found during the D letter review, but don't count on it.

[Kevin C]

Definitely get all the problems fixed before you file. If you file for a determination letter and they find a problem, you are not eligible for VCP and SCP is only available for insignificant failures.

Filing a 5300, 5307 or 5310 means the plan is "under examination" per Rev. Proc. 2008-50, Section 5.07(3). When a plan is "under examination", VCP is not available and SCP correction of significant failures is not available. See Section 4.02.

We had an operational failure come to light during the 5310 filing for a plan last year. The agent insisted that meant audit CAP. Fortunately, we were able to convince them it was an insignificant failure and correct under SCP.