IRS Audit

[justatester]

The situation is that we used 1 YOS & semi-annual entry dates for disaggregation purposes (max allowed), and the plan's entry date was not semi-annual. The IRS auditor is challenging this, saying that we should have used the plan's entry date for determination of the disaggregated group.

Has anyone ever had an IRS auditor challenge this? Any suggestions to 'convince' the auditor this is ok.

[Tom Poje]

Different IRS personal have voiced different opinions at various ASPPA conferences. they keep promises we will be provided guidelines but none have ever been produced yet.

If you have one of the Q and As that says you can use semi-annual entry date rather than plan entry dates you could show them that and say you are following those guidelines.

[justatester]

Do you happen to have the copy of the 2/1/2006 IRS internal memorandum that addresses this?

[Tom Poje]

Haven't seen the internal memorandum.

the accudraft document will say use maximum exclusion and uses 'hypothetical entry date'

the hypothetical entry date refernces the plan's entry date.

my understanding, or at least from IRS comments the plan could be written otherwise.

[ETA Consulting LLC]

The appropriate question is for what purposes are you disaggregating? When you're disaggregating for non-elective purposes, then you must use plan entry dates (there is no debate). The issue comes when you are disaggregating for ADP/ACP (where praticioners typically use semi-annual dates, which is often debatable).

Good Luck!

[Tom Poje]

again, does your document describe how to handle? (edited to add sample language)

here are some samples:

Hypothetical Entry Date. The term Hypothetical Entry Date means, with respect to a Plan (or a component of a Plan) that provides that Otherwise Excludable Participants are eligible to participate in the Plan (or component of the Plan), the date that an Otherwise Excludable Participant would hypothetically enter the Plan (or component of the Plan) and would no longer be considered an Otherwise Excludable Participant had the Plan (or component of the Plan) used the statutory maximum age and service requirements of Code §410(a)(1)(A) as the eligibility requirements for the Plan (or component of the Plan). The Hypothetical Entry Date for purposes of this Plan is the date that the Employee satisfies the maximum statutory age and service requirements under Code §410(a)(1)(A).

Have another from the same document provider which changes entry date to "as specified in section XXX" which says quarterly entry, so that appears to be whatever you checked. Note the difference in language.

Hypothetical Entry Date. The term Hypothetical Entry Date means, with respect to a Plan (or a component of a Plan) that provides that Otherwise Excludable Participants are eligible to participate in the Plan (or component of the Plan), the date that an Otherwise Excludable Participant would hypothetically enter the Plan (or component of the Plan) and would no longer be considered an Otherwise Excludable Participant had the Plan (or component of the Plan) used the statutory maximum age and service requirements of Code §410(a)(1)(A) as the eligibility requirements for the Plan (or component of the Plan). The Hypothetical Entry Date for purposes of this Plan is the Employee's entry date under Section 2.1 for the component of the Plan for which the determination relates.

another example: (this one seems real flexible!

Code Section 410(a) Excludable Employees. The Company may treat, pursuant to applicable Treasury Regulations, Participants who have not met the minimum age and service requirements of Code section 410(a)(1)(A) as comprising a separate plan for purposes of Section 5.02 pursuant to Subsection (1) or (2), provided the disaggregated Plan consisting of such excludable Nonhighly Compensated Employees separately satisfies the requirements of Code section 410(b) and the Plan does not utilize Section 5.03(h).

(1) Annual Entry Date. The Plan Administrator may treat Participants who have not met the minimum age and service requirements of Code section 410(a)(1)(A) before the first day of the seventh month of the Plan Year as comprising a separate plan. If the Plan provides safe harbor contributions, Participants not considered in the separate plan must be eligible for safe harbor contributions for the entire Plan Year.

(2) Semi-Annual or More Frequent Entry Date. The Plan Administrator may treat Participants who have not met the minimum age and service requirements of Code section 410(a)(1)(A) using one of the entry dates specified in the Plan (not less frequently than semi-annual) before the last day of the Plan Year as comprising a separate plan. Contributions of Participants who have an entry date during the applicable Plan Year shall not be counted in the separate plan.

[ETA Consulting LLC]

An employee shall not be treated as meeting the age and service requirements described in this paragraph until the first date on which, under the plan, any employee with the same age and service would be eligible to commence participation in the plan.

My contention was that this provision "may" or "may not" apply when separate testing for ADP/ACP. However, when separate testing for non-elective, then you must use the plan entry.

Not sure if this is what you're getting at.

Good Luck!

[John Feldt ERPA CPC QPA]

Watch out, them's big words Mr. Kit.

(for those of you watching at home or getting the text only version, the previous post has "under the plan" in bold and in the largest size font available).