Plan Document vs. Collective Bargaining Agreement

[CuseFan]

We have taken over a plan under which some, but not all participants are covered by collective bargaining agreements. Some, but not all, of the  bargained benefit changes have been incorporated into the document, either by amendment or as part of a restatement. For example, a benefit increase for one union  and a benefit freeze for another union are nowhere to be found in any version of the document or amendment. We have also scoured the document and nowhere does it incorporate by reference any of the CBAs.

We think this is a problem while an in-house attorney for the former actuary/document provider says it's not a big deal because the CBAs "trump the plan document". We think the IRS would disagree with that assertion. I found an article that referenced inconsistencies between document and CBA being a compliance failure, at least in the multiemployer plan context, but I don't see a difference (our plan is not multiemployer).

http://www.unitedactuarial.com/research/pdf/2009_36.pdf

We have advised the client that we think a VCP submission is in order for this (in addition to other administrative/operational failures).

Does anyone have direct experience with IRS looking at a plan where the document and CBA do not jibe?

Any other thoughts?

[Mike Preston]

We gave the same advice to a small collectively bargained plan.  Interesting to note that some pre-approved plans now include a benefits/allocation provision that with a simple check of a box becomes: "Whatever the CBA says to do."

[CuseFan]

Thanks. Unfortunately, this is a fairly complex DBP that covers two different unions plus non-union (merged along the way).

[MoJo]

I agree with Mike P.  I would add that the CBA binds the employer.  The plan document defines the plan.  The two are different and the remedy for not incorporating the right provisions into the plan is to seek enforcement against the employer....

[CuseFan]

Exactly - not only do we have a plan compliance issue, there is a potential labor relations issue.

Thanks M & M 

[Luke Bailey]

IRS permits incorporation by reference. Here's the IRM cite:

https://www.irs.gov/irm/part7/irm_07-011-006.html#d0e293

But they require some detail to connect the CBAs to the plan doc. The below will give you a flavor for what IRS wants, but you should read the entire thing.

At least as far as IRS is concerned, I don't think that the idea that the CBA is binding and "trumps" the plan for labor law purposes is going to cut it, so if there really is no incorporation of the CBA terms in the plan doc at all, yes, I think VCP would be the way to go, especially since you can no longer sneak the changes into a DL submission, unless the plan has never had a DL or is terminating (whole other set of issues then).

I'm pretty sure there is at leas one case on this, maybe more, but I'm not sure they were qualification cases. I remember Joyce Khan discussing at least one case years ago in connection with the "scrivener's error" issue.

In my experience, the CBAs are never specific enough to be administered as a plan doc anyway. Always have ambiguous provisions that may be interpreted differently by different payroll folks, so best to spell out in plan doc and SPD what you think the CBA was trying to say.

 

7.11.6.3  (08-22-2016)
Incorporating Auxiliary Documents by Reference

 

1. A plan sponsor is permitted to incorporate the terms of a CBA, participation agreement or reciprocity agreement by reference to inform employers and participants of the specific plan terms. However, this incorporation doesn’t always provide sufficient information for IRS to review a DL application.

2. When plans incorporate provisions of auxiliary documents by reference, there are two separate issues. Make sure:

   1. You can review the plan to determine that it satisfies all of the qualification requirements necessary to receive a favorable DL.

   2. The plan language is sufficient for it to receive reliance on the letter for the specific sections incorporated by reference.

3. Generally, if the sponsor wants reliance for parts of these auxiliary documents, then they must submit the exact language of the parts being incorporated as an appendix to the plan. We don’t accept CBAs, participation agreements and reciprocity agreements in their entirety for review.

4. For DL applications with a control date after September 17, 2015, if any of the plan’s IRC 401(a) provisions (coverage, benefit formula, distribution options, class of covered employees, etc.) are incorporated by referencing an auxiliary document, then the plan sponsor must add the applicable parts of the auxiliary document to the plan, regardless of whether they want reliance for these parts of the auxiliary documents.