401(k) Plans

[MPLSLAW]

I have been asked to help terminate a 401(k) plan that was adopted (signed by an officer of the employer) in December 200X. The plan and the 401(k) arrangement were "effective" several months earlier according to the plan documents. If the employer started accepting deferrals before the plan was approved and signed, arguably those deferrals are non-qualified deferrals. The 401(k) regulations provide that non-qualified deferrals will not automatically disqualify the plan. If the initial plan year is a closed year and the plan document is silent about the timing of the initial plan year deferrals, is there a plan disqualification issue? If so, what is the correction?

[ETA Consulting LLC]

I have been asked to help terminate a 401(k) plan that was adopted (signed by an officer of the employer) in December 200X. The plan and the 401(k) arrangement were "effective" several months earlier according to the plan documents. If the employer started accepting deferrals before the plan was approved and signed, arguably those deferrals are non-qualified deferrals. The 401(k) regulations provide that non-qualified deferrals will not automatically disqualify the plan. If the initial plan year is a closed year and the plan document is silent about the timing of the initial plan year deferrals, is there a plan disqualification issue? If so, what is the correction?

It's hard to follow the fact pattern. Typically, when a new plan is adopted, the original effective date is usually made retroactive back to the 1st day (i.e. January 1st). At the same time, a provision would be written to state deferrals will not begin until actual adoption.

Your fact pattern suggest that someone may have started a plan, but failed to execute the initial document prior to actually beginning the plan in operation. This would appear to be an issue worth correcting. It appears to be worthy of a VCP filing; perhaps to make the original effective date earlier (provided the plan actually operated while the delayed execution was merely a technicality).

Good Luck!