VCP correction

[Belgarath]

I'm just trying to see if my thinking here is off-base.

IRS approved prototype plan. The plan always INCLUDED union employees. Then, as part of the EGTRRA restatement, the analyst inadvertently checked the box to EXCLUDE union employees. The subsequent valuation was done "correctly" according to how the plan was always administered, and INCLUDED union employees. The discrepancy was just noticed.

This will be submitted through VCP, with a proposed amendment simply changing it back to include union employees. My question is, does this also require a determination letter filing?

Section 6.05(3)(b) appears to cover this situation for an Operational Failure corrected by amendment, and seems to require that although the d-letter application should not be submitted with the VCP application if you aren't in an "on-cycle" year, it will require a subsequent d-letter application once you do reach the on-cycle year. I'm wondering, however, if a prototype, use of which which will otherwise generally allow the opinion letter to be treated as a determination letter for 2008-50 purposes, would exempt the plan from filing?

It seems to me that filing is required. However, I'd love to hear opinions on this. Thanks!!

[Guest Sieve]

Are you sure you need any correction at all? Plan language--especially prototype Basic Plan Documents--generally follows the Code, i.e., the plan will exclude union employees who are subject to a collective bargaining agreement unless the CBA provides that they participate. So, union empoloyees are not usually excluded as a group. Review the plan's language to confirm if there really has been an operational failure--because, if the CBA says they will participate, checking the adoption agreement box to exclude union employees almost always will allow those union employees to participate.

[Belgarath]

Alas, this is just the opposite. Union employees are automatically included unless specifically excluded. There is in fact an operational error. So my original questions still stand.

[Guest Sieve]

How about the last sentence of EPCRS Section 6.05(1):

"Notwithstanding any other part of this section 6.05,

a determination letter is not required if the correction by plan amendment is achieved through

the adoption of an amendment that is designated as a model amendment by the Service or

the adoption of a prototype or volume submitter plan with an opinion or advisory letter

as provided in Rev. Proc. 2008-6, 2008-1 I.R.B. 192, on which the Plan Sponsor has reliance." (Emphasis added.)

That seems to mean that a prototype plan adopted to correct an operational failure does not have to be submitted for an FDL--&, per its language, it trumps 6.05(3)(b).

[Belgarath]

That's precisely the section I was hoping to rely on, but I frankly wasn't sure if the language you highlighted applies in this situation. I wasn't sure if this applies, since the plan was already a prototype, and if the proposed amendment constituted an "adoption of a prototype " for these purposes which would exempt you from filing. But it doesn't seem to make sense that you don't have to file if you corrected a qualification failure for an IDP by adopting a prototype, yet correction of an operational failure within that prototype would require a determination letter?

[Guest Sieve]

I agree with you. That language ought to apply to your situation.

That being said, I would encourage the plan to apply for an FDL in the next cycle. In any event, I would read the compliance statement carefully to see whether, by its terms, it requires an on-cycle submission.

[Belgarath]

Thanks!

[Kevin C]

If you are worried about an amendment not being treated the same as the adoption of a prototype, you can always restate the document. I agree that logically the two should be treated the same, but we are talking about an IRS program.

Out of curiosity, I looked at our VS documents. The exception Sieve mentioned when the CBA calls for plan participation is buried in the definition of Collectively Bargained Employee. I learned something new today, is it time to go home yet?

[Guest Sieve]

Bel -- I'd agree with Kevin that you ought to restate the AA to be safe (if you don't want to submit the plan for an FDL). I assumed that's what you meant, because my TPA client almost always restates the entire AA rather than using a short "paper" amendment--but, in case you intended just to adopt a short amendment to correct your operational failure, I'd advise against it and in favor of a full AA restatement. (Of course, that's immaterial if you're going to submit for an FDL in the next cycle.)

Kevin -- Yes. Go home! (By the way, I thought the Corbel Basic Plan Document uses this exception, but apparently not. However, its VS (non-prototye style) does: "Employees whose employment is governed by the terms of a collective bargaining agreement . . . under which retirement benefits were the subject of good faith bargaining . . ., unless such agreement expressly provides for coverage in this Plan." (Emphasis added.))

[Belgarath]

Good suggestion. Thanks again!

[jpod]

I realize you were only inquiring about the need to apply for a DL, and if you are committed to VCP I wouldn't fool around and would certainly advise the employer to do the DL. However, I don't know what kind of a VCP fee and professional fees the employer is looking at, but under the circumstances employer might be willing to take the risk and just go ahead and retroactively amend without VCP. Looking through the forest to the trees, and especially if participation is required by the terms of the CBA, is there really a non-theoretical risk of disqualification here? Even if an agent spotted this on audit and decided to be a cowboy, I think the employer would win at the end of the day. One call to a Congressman's office or two and this would be nipped in the bud.