411(d)(6)

[Guest ICannotDiscloseMyIdentity]

A new TPA firm took over the DB plan adminitration of a small DB plan that had been administered by a prior TPA firm. My client's DB plan was recently restated for EGTRRA by the new TPA firm. The restatement's effective date was 7-1-2010 - the plan has a June 30 plan year end.

My client signed the restated prototype document in December of 2010. Now, my client says the formulas are wrong. The prior TPA today produced a signed amendment that was never provided to the new TPA. The amendment was signed in June 2009 and was effective 7-1-2009.

The formula in the 7-1-2009 amendment gave 0% for a handful of HCEs - that was the only change done by the amendment (proper 204(h) notices were provided).

The new plan, as restated, provided the pre-2009 formula of 0.5% of pay to those HCEs. The owner/plan sponsor did not intend any formula change and does not want these HCEs to accrue the 0.5% benefit for the 2010 plan year.

What do we do? Is there any way to argue that these benefits are not accrued - that the 2009 amendment still applies somehow? Would that require VCP to do that?

[Guest Sieve]

If the amendment says that it survives a restatement (which some do, such as Corbel's prototype interim amendments), then you may be ok--but I think that would be extremely rare. Otherwise, I think you have a problem--especially if you try VCP, where the IRS does not like "scrivener's error" arguments (particularly when you're cutting back benefits).

Or, you can do what some others (who might they be?) have been known to do when faced with scrivener's errors: replacement pages.

[John Feldt ERPA CPC QPA]

I think the "replacement page" idea is full of holes, after all he is a sieve. That's precisely the thing that the IRS would be very harsh about since it is a deceptive and illegal practice. A replacement page amendment is okay, but not a replacement page to remove and void a page that was previously adopted by the plan sponsor, especially if it involves a loss of accrued benefits, or some rights or features.

I think your only hope is probably VCP, but one court case said that VCP only covers the plan and plan sponsor from an IRS perspective, not from a participant lawsuit perspective. Are any of those excluded HCEs going to sue over this?

[Guest Sieve]

J4 --

I did not mean to mislead or suggest otherwise: replacement pages generally are a no-no--except, I believe, when communications prior to the execution of the document are clear as to intent and the drafting was contrary to that prior clear intent of the parties. My earlier post's statement was a poorly-worded indication that the IRS, whether through VCP or otherwise, does not agree with the applicatbility of scrivener's error corrections, and the only sure way to correct (albeit not permissible and highly irregular) is to take matters into your own hands.

Correction of scrivener's errors are now finding inroads in the courts, however, such as a recent case wherein a phrase in a DB benefit formula was duplicated in the document, and, the court pointed out, was ripe for reformation because the incorrect formula (as specified in the plan document) would have raised the actuarial costs some $500 million (as I recall) and was clearly incorrect by looking at the document's drafing history. Even the US Supreme Court has said, at the start of a recent case: "People make mistakes. Even administrators of ERISA plans" (although it was not a scrivener's error/reformation case).

In any event, have you--or has anyone else--ever had success in a VCP submission seeking correction of a scrivener's error?

[Guest bobolink]

I have been in positions where a client was comfortable substituting pages in cases where the error (1) it was a clear drafting error (2) it did not reflect the intent of the sponsor (3) it had not been widely disseminated (4) the error was never communicated to participants or otherwise "out there" in a way that could induce reliance on the erroneous term. Such situations also involve a "quick catch" and speedy resolution. The longer the error sits out, the less comfortable I am with the correction in this way.

I also agree there has been more judicial support and recognition of scrivener's errors, but only if the ducks line up.

[John Feldt ERPA CPC QPA]

Sieve,

We submitted a scrivener's error a few years back, but not under VCP, under a Form 5310 application. In a takeover plan we found that the pre-GUST document had intregration described as X% of all pay plus Y% of excess pay. The GUST restatement document was found to have X% of pay up to the integration level plus Y% of pay above the integration level. The GUST restatement used the same X and Y as the prior document.

Example:

Pre-GUST: 1.75% of all compensation + 0.65% excess pay

GUST: 1.75% of pay only up to int. level + 0.65% of excess pay

GUST document should have been:

1.75% of pay only up to int. level + 2.40% of excess pay

When this was discovered, the client was greatly troubled and decided they really only wanted to have a DC plan, so they asked that we terminate the DB.

In the 5310 application we described the issue, included a corrective retroactive amendment, and asked that the IRS let us know if such an amendment truly necessitated a VCP application, and that if it does, that they allow such an application to be submitted under VCP before they provide a D Letter. They required no VCP application and provided a D Letter that approved the amendment.

[SoCalActuary]

But John's example increases benefits. The original post describes a decrease in benefits. Big difference.

[John Feldt ERPA CPC QPA]

Right, I am just replying to Sieve's inquiry about any scrivener requests sent to the IRS, not specifically one that decreases benefits.

I see no easy solution for the OP.