Is EPCRS an option here?

[Cassopy]

Employer entered into a new collective bargaining agreement a couple of years ago that provided additional non-elective contributions and full vesting under the 401(k) plan (more generous than what the plan provides). The Plan was not amended to incorporate these negotiated terms of the CBA.

What is the fix?

Technically, there is no plan failure. Rev. Proc. 2021-30 states that "VCP provides general procedures for correction of all Qualification Failures: Operational, Plan Document, Demographic, and Employer Eligibility."  The plan has been operated in accordance with its terms, so there is no "Operational" failure, and it doesn't violate Section 401(a) by its terms, so there is no "Plan Document" failure.  There is no failure to satisfy the requirements of § 401(a)(4), 401(a)(26), or 410(b) ("Demographic" failure) and the employer is eligible to establish a 401(k) plan, so there is no "Employer Eligibility" failure. 

Thus, I read EPCRS to say that there is no relief available for this scenario. Is that accurate??

[Belgarath]

I'm a little confused - you say that the plan was operated according to its terms, so there's no operational failure. Yet it sounds like the plan was NOT operated according to its terms, (even though it was more generous) according to your first paragraphs. Based on what you've presented, I'd say that there is an operational error, so the full range of allowable corrections under EPCRS should be available to you, as appropriate under the specific circumstances.

One question - sometimes plans contain a clause in the contribution section to the effect that contributions to union employees will be made under the terms if the current CBA - so were some of these changes already automatically included?

[Lois Baker]

This 2018 discussion of the same question might be helpful.

[CuseFan]

7 hours ago, Belgarath said:

One question - sometimes plans contain a clause in the contribution section to the effect that contributions to union employees will be made under the terms if the current CBA - so were some of these changes already automatically included?

That should be the first check. Concerning operational failure or not, it may be that the plan was followed but the CBA was not - although I think a union rep would have been all over that. If plan contribution language is flexible then maybe the only issue is vesting and maybe no one has been directly impacted yet, hence so material conflict between operation and CBA.

The 2018 thread Lois provided has a lot of positions/arguments/disagreements but no true consensus, although I think most thought the plan document must govern. If you have nothing else to do this afternoon you can read it but otherwise let's cut to the chase - if the plan does not currently have language that incorporates for CBA then get it amended ASAP to comply with CBA.

[rocknrolls2]

I would view the changes agreed to between the employer and the union in the CBA to be proposals to amend the plan. Since this would be an optional or voluntary amendment to the plan, the IRS guidance on optional plan amendments not necessarily required by plan qualifications generally requires such amendments to be adopted by the end of the plan year in which they are to have been made effective. Accordingly, I would view this as a plan document failure which can be corrected via EPCRS. It would be helpful to know in what year the changes discussed in the CBA to be able to determine whether the change could be implemented via self-correction. If it is within 3 years of when the changes were agreed upon, then the plan could be self-corrected and thus, retroactively amended under the latest iteration of EPCRS.

[Cassopy]

On 10/12/2022 at 6:11 AM, Belgarath said:

I'm a little confused - you say that the plan was operated according to its terms, so there's no operational failure. Yet it sounds like the plan was NOT operated according to its terms, (even though it was more generous) according to your first paragraphs. Based on what you've presented, I'd say that there is an operational error, so the full range of allowable corrections under EPCRS should be available to you, as appropriate under the specific circumstances.

One question - sometimes plans contain a clause in the contribution section to the effect that contributions to union employees will be made under the terms if the current CBA - so were some of these changes already automatically included?

Yes, the Plan was operated according to its terms.  For example, the Plan states that participants vest 100% after 3 years of vesting service, and all participants did, in fact, vest according to that schedule.  The plan also provided for a 2% nonelective contribution, and all participants received the 2% nonelective contribution.  No operational failure.

However, the collective bargaining agreement provides for immediate 100% vesting for employees represented by the union and a 3% nonelective contribution for the union employees. The failure to immediately vest the employees and provide the enhanced nonelective contribution may be a violation of the CBA (which one would obviously want to avoid), but did it violate the terms of the Plan?

And I WISH the plan document contained that language -- the good ones do.  What's worse, it is a pre-approved volume submitter plan document that restricts the employer's ability to amend it.  The approach described by @rocknrolls is how I've generally viewed it as well -- the company's approval of the changes to the 401(k) plan as set forth in the CBA would constitute a plan amendment (which, if not administered consistent with CBA, WOULD be an operational failure the could be corrected under EPCRS). 

However, more and more pre-approved plans are foreclosing this as an option by limiting the employer's autonomy to adopt discretionary/optional plan amendments.  So what's left?

On 10/12/2022 at 10:47 AM, Lois Baker said:

This 2018 discussion of the same question might be helpful.

And the 2018 discussion on the topic was lively, though I didn't see a discussion of the basis for using EPCRS to retroactively amend the plan document -- it seemed a foregone conclusion that there was an plan document failure, without any explanation of how. 

Under EPCRS. a plan document failure is "a plan provision (or the absence of a plan provision) that, on its face, violates the requirements of § 401(a) or 403(a)."  In the scenario described above, there is no plan provision that, on its face, violates 401(a) or 403(a).  The plan's provisions violate the CBA, but that is not a qualification failure nor is it listed as a plan document failure under EPCRS.

This will definitely require a creative solution, but I don't see how EPCRS, by its terms, is one of them.