Retro-active amendment to allow in-service

[cpc0506]

We have a client that allowed a participant to take a distribution from the plan.  Participant is still working but is 65 so client thought they were eligible for a distribution.

In-service distributions are not allowed under the current provisions of the plan.  The document can be amended to allow in-service at normal retirement age now but this does not help the fact that a distribution occurred that was not permitted under the terms of the AA.  Can we do a retro-active amendment to correct this operational failure?  If so, does it need to be submitted under EPCRS?

[ETA Consulting LLC]

I don't think it can be corrected like that under Self-Correction, but that may be the most appropriate correction under VCP.  Without looking at EPCRS in detail, we know one admissible retroactive amendment under Self Correction is for early entrants, but I'm not sure off-hand that this applies to distributions.

But, you can certainly correct that way and submit it under VCP.  Logically, if you were to go out and retrieve the funds, all the individual would need to do is take another distribution now that the plan is amended to allow of it.  Hence, being above 59 1/2 help (assuming that distributions were taken from a Deferral or Safe Harbor Source).  Technically, you may have a little work.

Good Luck!

[Bird]

If the distribution occurred this year then you just have to amend by the end of the year.

[cpc0506]

50 minutes ago, Bird said:

If the distribution occurred this year then you just have to amend by the end of the year.

Bird,

Yes, the distribution occurred just last week.  We asked the client to get the funds back, but they have already been used.  Can you give a cite that all the needs to be done is for the amendment to be signed by 12/31/16?

[Bird]

You mean 17?

If someone with a better memory doesn't post that cite, I will find it.  Bump it if no response in a day or  two.

[cpc0506]

Yes, I mean 12/31/17.  (Yes, I know it is May already!)

[ETA Consulting LLC]

I know that discretionary amendments must be signed by year end, but that (to me) was in addressing a question on amendments to eligibility or contribution levels after year end.  For instance, if you have a formula that provides 5% per year but excludes widget builders.  You can amend the plan during the year to bring them in, but that is no longer an option after the year has ended.  Hence, the only method to bring them in would now fall under an 11-g corrective amendment (not discretionary but corrective).  When it comes to retroactively amending a plan to conform to an operation, there has historically been a 'no way'.  Recently, the EPCRS procedure opened this door for early entrants.  But, I don't see how this fact pattern fits into the 'discretionary amendment' issue; which is what I presume you're saying.

I'm always glad to have these types of discussions.  It helps me in the cases where I have it figured wrong.

Good Luck!

[imchipbrown]

Sounds like an Insignificant Operational Defect, by my first blush reading of what's cited below.   

26 CFR 601.202: Closing agreements. Rev. Proc. 2006-27

Take with a grain of salt

 

[Mike Preston]

ETA, way too limiting.  One can adopt an operational amendment before plan year end, subject only to 411(d)(6).  2007-44, me thinks. 5.05(2) therein states:

(2)  In the case of a discretionary amendment (i.e., one which is not an 
interim amendment described in section 5.02), an employer (or a sponsor or a 
practitioner, if applicable) will be considered to have timely adopted the 
amendment, if the plan amendment is adopted by the end of the plan year in 
which the plan amendment is effective.