Hardships / Self-Certification

[austin3515]

Is anyone making the shift to self-certification?  Has anyone spoken with auditors about this (I mean CPA auditors)?

http://benefitsbryancave.com/irs-views-on-self-certification-of-financial-hardship/

[RatherBeGolfing]

I would be very careful with self certification even after memo.  It doesn't make self certification compliant, but says you should treat it as if it was compliant if certain steps are taken.  If you fail to take those steps, you are once again not complaint. 

I spoke to some ERISA attorneys and auditors at luncheon last week and none are recommending self certification.  

[movedon]

I didn't read the memo, but I remember that law firm as the firm who wrote a "famous" memo in support of a springing cash value 412(i) plan scheme about fifteen years ago. I wonder how those cases played out. Apparently worked out OK for the firm if they're still around cranking out memos.

[austin3515]

Well this "memo" was written by the IRS.  I think the huge gaping hole in this system is that the participant is required to keep the documentation.  That is just a hilarious assumption.

[RatherBeGolfing]

35 minutes ago, austin3515 said:

Well this "memo" was written by the IRS.  I think the huge gaping hole in this system is that the participant is required to keep the documentation.  That is just a hilarious assumption.

Whats worse is that legally the memo really doesn't change anything.  It is a directive for the examiners to treat a non-compliant plan as if it was compliant if certain conditions are met.  Why risk it when you could just do it right?

[austin3515]

Quote

Why risk it when you could just do it right?

Why, because it's less work of course :)

[RatherBeGolfing]

2 minutes ago, austin3515 said:

Why, because it's less work of course :)

lol yea until the doo doo hits the fan

[austin3515]

Our decision so far has been not to take advantage of this.  I'm sure the IRS in 5 years will come to the realization that the fox cannot be trusted to guard the henhouse.

[K2retire]

5 hours ago, lippy said:

I didn't read the memo, but I remember that law firm as the firm who wrote a "famous" memo in support of a springing cash value 412(i) plan scheme about fifteen years ago. I wonder how those cases played out. Apparently worked out OK for the firm if they're still around cranking out memos.

I don't know about the earlier scheme. But I do know that Bryan Cave is a large, well respected firm in Missouri. ERISA is only a small part of what they do.

[Peter Gulia]

Despite an employer/administrator’s worry (as perhaps advised by its lawyer or independent qualified public accountant) that the IRS might tax-disqualify even a plan that adhered to the IRS memo’s conditions, could there be circumstances in which a loyal and prudent fiduciary might decide the plan should take that risk to gain for the plan expense savings?

 

Imagine a plan has been paying its recordkeeper a fee to collect the hardship claims, to image those documents (including underlying source documents), and to review the claims under a procedure the administrator set.  Imagine further the plan allocates its expense for that service by charging a $25 processing fee to the account of each participant who gets a hardship distribution.

 

The recordkeeper offers the plan electronic processing of the hardship claims under a method that meets the conditions of the IRS memo.  For those claims, the incremental fee is $0.

 

(To make this hypo simpler, assume the plan receives no contribution beyond salary-reduction contributions, so the employer gets its tax deduction whether the plan is qualified or isn’t.)

 

Could a fiduciary decide the harm to participants caused by a tax disqualification (adjusted for probability) is smaller than the burden of the processing expenses made necessary by not allowing participants a choice of the newer claims-handling method?

 

[RatherBeGolfing]

2 hours ago, Fiduciary Guidance Counsel said:

could there be circumstances in which a loyal and prudent fiduciary might decide the plan should take that risk to gain for the plan expense savings?

Yes I think so, especially in plans offered by payroll providers and bundled plans.

 

2 hours ago, Fiduciary Guidance Counsel said:

Could a fiduciary decide the harm to participants caused by a tax disqualification (adjusted for probability) is smaller than the burden of the processing expenses made necessary by not allowing participants a choice of the newer claims-handling method?

Yes.  But I would also say that a loyal and prudent fiduciary could make the opposite decision:  The probability of a screw up that results in non-compliance (even if the end result is not disqualification) is greater than the small burden of documenting hardship distributions correctly.  I don't think there is a wrong or right way here, there is doing it by the book or using a short cut and hoping you don't slip up.