Wrong Document. For Years

[ERISAatty]

Here's a good one...

Small employer adopted a profit sharing plan (on profit sharing prototype document) over a decade ago. It has since been amended and restated on profit sharing prototype.

The problem is that from inception, the plan has been operated as a profit sharing AND 401(k) plan, with employee deferrals permitted. The 401(k) employee contributions (and related 401(k) requirements) are not addressed in the document.

I am going to be submitting this through VCP and am trying to weigh the options. Am considering whether this would be safer as a John Doe Submission initially. I am planning to seek approval for retroactive amendment of the proper plan type (and related subsequent amendments).

Anyone ever had to deal with this type of document failure before?

[ETA Consulting LLC]

I think there "may" be a little more to the story; since this goes back to 2001 and before. The initial plan was likely written to a TRA '86 adoption agreement. Many of those had two parts: 1) Profit Sharing; and 2) Deferral Agreement. It was only after GUST that many prototypes merged those two on a single document. So, there would be a separate attachment containing the deferral portion on the original document that wasn't mapped over when the plan was restated for GUST. Since the plan was already operating under these provisions since inception, nothing changed, operationally, when it was mapped to a PS only instead of a 401(k).

You should ask the client to look for the other attachment (containing the deferral portion) from the original document; because it must be there. Then, you can file under regular VCP because it's a common occurance.

Note: Back in the day, we learned that 401(k) isn't a plan, but instead a feature within a profit sharing plan. During TRA '86, prototypes were created as PSP prototypes and merely contained attachments for those plans that wanted to add the 401(k) deferral feature. I'll bet that attachment exists, but was not considered during the GUST restatement. I could be wrong, but in my submission to the IRS, that would be my story (because it's likely what happened).

Just my $0.02.

Good Luck!

[ERISAatty]

Oh, I didn't know that history on the two-part documents. Makes perfect sense. The plan as issue was adopted in 1988, so I will now try to track down the 401(k) deferral attachment. THANK YOU so much for sharing that insight. You saved me more than $0.02 in time!! Much appreciated!