Restating Plan in Connection w/ New Vendor

[austin3515]

Plan moves from RK A to Best TPA. In connection therewith the plan documents are "required" (if the word is used loosely) to be restated in order to maintain reliance on a favorable opinion letter. Can this expense be paid by the Plan?

I say "yes". Just wanted to see if others agree.

[Lou S.]

I don't see why not, with usual caveat that provided document allows for payment of plan expenses.

I suppose it could technically be argued that it is a settlor function to change vendors which caused the recquired change but personally I think that's a stretch.

[QDROphile]

How could an administrative matter be a settlor function? This is one of the evils of the malpractice of naming the sponsor as plan administrator or having the administrative contracts with the sponsor.

No comment on the original post.

[Bird]

Plan moves from RK A to Best TPA. In connection therewith the plan documents are "required" (if the word is used loosely) to be restated in order to maintain reliance on a favorable opinion letter. Can this expense be paid by the Plan?

I say "yes". Just wanted to see if others agree.

Agree.

[Kevin C]

If the contemplated restatement is going to use a newly approved PPA document, then I agree it can be paid for by the plan since it would also be a required restatement. If the contemplated restatement would use an EGTRRA document, I disagree.

[BG5150]

Why Kevin? Isn't it just the cost of administering the plan, this time with a new RK?

Whether the cost is reasonable is another debate.

OP: What difference does it make who the TPA is for reliance on an opinion letter? (I can understand that the prior TPA/vendor wouldn't support the current document any more, but I don't see how an opinion letter status is jeopardized.)

[austin3515]

If I do not restate onto our prototype, the "old" document is now an individually designed plan.

[BG5150]

Why is that?

[austin3515]

Why does the IRS say that? I suppose it's because of the integral role the plan document sponsor plays with respect to the prototype/volume submitter plan.

[Kevin C]

Your old document is only an individually designed plan if you have amended it in a way that makes it one. Interim amendments and amendments to choices allowed by the pre-approved document do not cause it to be individually designed. See Rev. Proc. 2011-49, Section 19.03.

(3) An adopting employer can rely on an opinion or advisory letter only if the requirements of this section 19 are met, and the employer's plan is identical to an approved M&P or specimen plan with a currently valid favorable opinion or advisory letter; that is, the employer has not added any terms to the approved M&P or VS plan and has not modified or deleted any terms of the plan other than choosing options permitted under the plan or, in the case of an M&P plan, amended the document as permitted under section 5.06 or 5.09 or, in the case of a VS plan, modified the document as permitted under sections 14 and 15. Thus, for example, in the case of a VS plan, the employer's plan must be identical to the approved specimen plan except as the result of the employer's selection among options that are permitted under the terms of the approved specimen plan and modifications permitted under sections 14 and 15.

For purposes of this section 19.03(3), a plan will not fail to be identical to an approved M&P or specimen plan if:

(a)

the employer modifies or amends the plan to add or change a provision and/or to specify or change the effective date of a provision, provided the employer is permitted to make the modification or amendment under the terms of the approved M&P or specimen plan as well as under § 401(a) or 403(a), and, except for the effective date, the provision is identical to a provision in the approved plan;

(b)

the employer, sponsor or practitioner adopts an interim or discretionary amendment in accordance with section 21 or Rev. Proc. 2007-44; or

©

the employer adopts a model or sample amendment that the Service has indicated will not cause the plan to be treated as an individually designed plan.

For example, an employer is not required to restate its M&P or VS plan in order to change options under the plan or to specify different effective dates. Also see section 5.02, which limits an employer's ability to amend an M&P plan without causing the plan to be treated as an individually designed plan, and section 5.11, which requires the employer to complete a new signature page when the employer changes options in an M&P adoption agreement. An adopting employer cannot rely on an opinion or advisory letter if the adopting employer has modified the terms of the plan's approved trust in a manner that would cause the plan to fail to be qualified under § 401(a).

Unless there is a compelling reason you haven't told us, I don't see that an immediate restatement is required.

The current restatement window opened May 1, 2014, so you should be able to restate using a newly approved PPA document. That gets them in your document and covers their required restatement, which can be paid for by the plan. I also think there would be fiduciary issues with trying to use plan funds to pay for a restatement into an old version document that will need to be restated again in less than 2 years when it is possible to restate now using the new document.

[austin3515]

a) I am billing for a restatement that was done last year.

b) I was under the distinct impression that if a client remains on the pre-approved document of another vendor that they can no longer rely on the opinion letter? Is that not the case?

[Kevin C]

Section 19 of the Rev. Proc. lists the rules for reliance on the opinion letter. The one before that was Rev. Proc. 2005-16 I don't see anything that requires you to remain a client of whoever prepared the document to have reliance. If you don't do anything with the old document, you would eventually have a problem because any amendments adopted by the document sponsor probably would not apply to your plan. But, those would be interim or model amendments, which can be adopted by the Employer without losing reliance on the opinion letter.

It's been a while, but I do remember seeing a couple of documents that had provisions that would prevent them from being used if you left that TPA. The provisions I'm thinking of were in the base document and required the assets to be held in a Trust account with XYZ Company. That provision could not be amended without making it individually designed. That's why I mentioned unless there is a compelling reason you haven't told us ...

Your impression may come from older rules.

[Guest A_Dude]

I agree with Kevin. Only if the document "needed a substantial change" does it need to be restated when going from one vendor to another. Simply changing service providers is not enough to justify the cost of a restatement. There has to be reason, and the "old" opinoin letter is still valid if there are no changes to the document. And, most interim amendments from the new vendor are probably still compatible with the old document.

Basically, they don't want to see vendors "padding" their bills to paticipants for uneeded changes. I think it's pretty common that almost everyone restates takeover clients right away to their documents though..... At least, that's the imppression I have gotten in my still young career in this industry.

[Peter Gulia]

Let's refocus the query. Assume circumstances in which, following the change in service providers, nothing in the Internal Revenue Code (including rules, procedures, and other interpretations under the tax Code) requires a change to a document that was stated using a no-longer service provider's prototype or volume-submitter document. But the employer is willing to restate the plan because the employer wants to make the current service provider's work more efficient by letting it look to a form of document on which the service provider has a developed base of knowledge and experience.

In those circumstances, is the expense of restating the plan an expense that is reasonable in the plan's administration because it enables the plan to obtain the current service provider's services (or obtain them more efficiently)?

For those who worry about whether an otherwise unnecessary restatement can be a proper plan-administration expense, would it change your analysis if the superior service provider were unwilling to accept an engagement unless the plan is restated using the document that the service provider prefers?

[Bird]

Let's refocus the query. Assume circumstances in which, following the change in service providers, nothing in the Internal Revenue Code (including rules, procedures, and other interpretations under the tax Code) requires a change to a document that was stated using a no-longer service provider's prototype or volume-submitter document. But the employer is willing to restate the plan because the employer wants to make the current service provider's work more efficient by letting it look to a form of document on which the service provider has a developed base of knowledge and experience.

In those circumstances, is the expense of restating the plan an expense that is reasonable in the plan's administration because it enables the plan to obtain the current service provider's services (or obtain them more efficiently)?

For those who worry about whether an otherwise unnecessary restatement can be a proper plan-administration expense, would it change your analysis if the superior service provider were unwilling to accept an engagement unless the plan is restated using the document that the service provider prefers?

Good points. I think you have to ((the sponsor has to) look at the transactions (change of service providers, restatement) as one event, and decide if it is worth it or not. Talk about whether a restatement is necessary or not under the code/regs is a distraction; I can definitely see the point if a service provider says they can't administer the plan using someone else's document; we do (use existing documents) sometimes, but it can be a pain. Ultimately, I see no problem with such expenses being paid by the plan.

[BG5150]

Is restating the plan considered an amendment?

If so, I would say that it would be a discretionary amendment and not eligible to be paid out of plan assets.

Could you be surreptitious about the billing and say there is a $1,000 "take over fee" or something and that the new document is part of it? Maybe.

[Kevin C]

http://www.dol.gov/ebsa/programs/ori/advisory2001/setq&are.htm

From the answer for Hypothetical 3:

In the context of tax qualification activities, it is the view of the Department that the design of a plan as a tax-qualified plan clearly involves settlor activities for which a plan may not pay. On the other hand, implementation of the settlor decision to maintain a tax-qualified plan would require plan fiduciaries to undertake activities relating to maintaining the plan’s tax-qualified status for which a plan may pay reasonable expenses (i.e., reasonable in light of the services rendered). Implementation activities might include drafting plan amendments required to maintain tax-qualified status, nondiscrimination testing, requesting IRS determination letters.

I would classify restating when not required to either make things easier on a new service provider or to accommodate a new service provider who refuses to work with someone else's document as plan design. I don't see that as being any different than amending to change other plan provisions like distribution timing so that it matches all of the other plans of the new service provider. Obviously others have a different opinion. I don't think anything anyone says will get us to all agree about this.

[austin3515]

My policy has always been that if the area is sufficiently gray, and saves the client $1,000, then I'm all for it.

I like to restate just to keep my life simple. And if my life is simple I'm less likely to make mistakes. I would also say that since we use Corbel, I would not be able to ask Robert Richter how to interpret a McKay Hochman document and for me that is a problem. So in that regard using a document that cannot be fully supported sounds problematic to me. And what of ongoing regulatory amendments? The more I think about it the more I come to the conclusion that this is an expense that what could at least make a very colorable argument for payment by the Plan.

[Belgarath]

I'd look at it this way.

The expenses involved in making the decision to restate (consultant fees, attorney fees, etc.) are a settlor function and may not be charged to the Plan.

Once the decision has been made that restatement is either beneficial (for many possible reasons) or "required" due to the expiration of "licensing" of the document, or whatever you want to call it when the client severs the relationship with current provider, then the restatement fee itself may be paid by the plan.

[Kevin C]

Belgarath, I think you would have trouble getting the DOL to agree with that.

http://www.dol.gov/ebsa/programs/ori/advisory2001/setq&are.htm

The response to Hypothetical 1 says the both the study used to decide if a spin-off would be implemented and the amendment adding it to the plan are settlor functions. The administrative part starts after the amendment has been adopted.

Here are the two paragraphs of the response to Hypothetical 3 that follow the one quoted above.

Applying the above principles, the $50,000 to amend the Plan to comply with tax law changes and the $20,000 for routine nondiscrimination testing may constitute reasonable expenses of the Plan. The $25,000 to amend the Plan to establish a participant loan program would be a plan design/settlor expense inasmuch as the plan fiduciaries have no implementation obligations under the Plan until such time as the Plan is amended. Subsequent to the Plan amendment, however, expenses attendant to operating the established loan program would be implementation expenses with respect to which the Plan may pay reasonable expenses.

The single charge of $100,000 includes expenses for plan design/settlor activities (i.e., amending the plan to establish an early retirement window) and implementation activities (i.e.,obtaining an IRS determination letter). Inasmuch as fiduciaries may pay only reasonable expenses of administering the plan, the fiduciaries of the Plan would be required to obtain from the service provider a determination of the specific expense(s) attributable to the fiduciaries’ implementation responsibilities (i.e., obtaining an IRS determination letter) prior to payment by the Plan.

I read these as the DOL draws the line between settlor and administrative functions after adoption of a non-required amendment.

While I don't agree that the plan should pay for the restatement under discussion, I think an argument that the restatement is somehow necessary for proper plan administration, like parts of Austin's post #18, would have a better chance of convincing the DOL.

[Belgarath]

We'll have to agree to disagree on this one. I'd certainly argue that if you have an agreement with document provider "A" that says, "once you sever services with us you may no longer use this document" - therefore requires you to adopt someone else's document - and that fee is then a reasonable and necessary cost of administering a plan. On the other hand, the decision to sever services with "A" and any expenses involved in making that is a different matter.

And I'm sure there are several shades of gray on all of this. Maybe we can collaborate on a racy novel of ERISA greed, intrigue, lust, and corruption and name it "Many Shades of Gray" or something like that.

Anyway, I appreciate your input.