Ability to reform plan document in Walk-in CAP

[Guest John Nelson]

Does anyone have experience with retroactively amending plan document to reflect plan sponsor's intent and actual operation of plan -- plan document states eligibility condition is 3 months of service, but plan sponsor intended 1 year of service and has consistently administered plan accordingly. I would generally recommend going through Walk-in CAP to amend plan document back to effective date (1/1/97) to provide for 1 year of service, but am concerned that IRS would not approve proposed amendment because it is not "most beneficial to plan's participants". Any thoughts?? Thanks.

[Guest njwhite]

My firm has extensive experience in filing Walk-in CAP applications which propose that the plan be retroactively amended to conform its terms to the manner in which it has been operated ("reformation CAP"). And, certainly, I reviewed a number of such cases in my prior life as the Western Region Walk-in CAP Coordinator. Based my experience, I believe you do face an uphill battle, given the fact that your proposed amendment is not favorable to rank-and-file participants.

However, I suggest that you contact the Walk-in CAP Coordinator for your area and, on an anonymous basis, explain the facts of your case. This will allow you, on a quick and inexpensive basis, to get a read on whether your proposed amendment has a "shot" under Walk-in CAP. If it appears that it does, I would then follow up by filing an anonymous ("John Doe") Walk-in CAP application. Filing on an anonymous basis will preserve your ability to withdraw the application if the IRS later determines that it is not willing to accept the retroactive amendment. Of course, you could then file a VCR application to correct the operational defect.

In any reformation CAP case, the key to success is establishing the plan sponsor's intent, and that it would be unjust or unreasonable to allow what amounts to a typo/scrivener's error to overturn that intent. Depending on the facts of the case (and the equities involved), a fair amount of skill may be required in making these arguments.