Technical Amendment Due To Mistake At Plan Setup

[metsfan026]

We are taking over a client whose TPA messed up the original plan setup and didn't put in the correct provisions for certain things (particularly Normal Retirement Age & Vesting Schedule).  The question is, how far back can we go to correct these things (the plan is roughly 2 years old, the client just didn't notice the error until now)?  Or can we not do them retroactively and just have to do it moving forward.

I'll be honest, this is one I've never encountered so I wanted to be sure we did it correctly.

[Peter Gulia]

For each previously written provision the plan sponsor now considers incorrect or unintended, is the to-be-amended provision more or less favorable to a participant than what the documents governing the plan now state?

[metsfan026]

34 minutes ago, Peter Gulia said:

For each previously written provision the plan sponsor now considers incorrect or unintended, is the to-be-amended provision more or less favorable to a participant than what the documents governing the plan now state?

 

Normal Retirement should be 65 (it was setup as 62)

Vesting is going from 6-Year Graded to a 3-Year Cliff 

I'm not sure the NRA has a big impact on anything.  I guess we need to give everyone who earned vesting during that time that vesting, but make them 100% after 3-years?

[Paul I]

From the way the OP is worded, it sounds as if the client does not want to assume any responsibility for signing a plan document without fully understanding what they were signing, and they now want to declare this is totally the TPAs fault.  One thing that is almost always certain, when the IRS discovers a disconnect between the plan document and plan operations, the plan document governs and the plan sponsor is accountable for the content of the document.  The only instances where the IRS possibly may be possibly swayed on a hope and a prayer is if there is an overwhelming amount of documentation contemporaneous with the adoption of the plan and the original intent to have certain provisions that were not reflected in the document.  The IRS more likely be agreeable to accepting the retroactive application of plan provisions that are favorable to participants and are not discriminatory in operation.

Given the changes in question, there should be no issue with accelerating the vesting schedule, but be careful with the change in NRA for any participant who is withing three years of age 62 (since attaining NRA would trigger full vesting).

Be a little wary of this client who will blame you when something goes off the rails, and make sure you maintain documentation of source data and any operational issues when they arise.  This is particularly important in this environment when plans can be administered base on documented administrative procedures that have not yet been codified into the formal plan document.

[metsfan026]

5 minutes ago, Paul I said:

From the way the OP is worded, it sounds as if the client does not want to assume any responsibility for signing a plan document without fully understanding what they were signing, and they now want to declare this is totally the TPAs fault.  One thing that is almost always certain, when the IRS discovers a disconnect between the plan document and plan operations, the plan document governs and the plan sponsor is accountable for the content of the document.  The only instances where the IRS possibly may be possibly swayed on a hope and a prayer is if there is an overwhelming amount of documentation contemporaneous with the adoption of the plan and the original intent to have certain provisions that were not reflected in the document.  The IRS more likely be agreeable to accepting the retroactive application of plan provisions that are favorable to participants and are not discriminatory in operation.

Given the changes in question, there should be no issue with accelerating the vesting schedule, but be careful with the change in NRA for any participant who is withing three years of age 62 (since attaining NRA would trigger full vesting).

Be a little wary of this client who will blame you when something goes off the rails, and make sure you maintain documentation of source data and any operational issues when they arise.  This is particularly important in this environment when plans can be administered base on documented administrative procedures that have not yet been codified into the formal plan document.

Thanks Paul.  If someone has 2 years of service though, we have to maintain them as 20% vested correct?  We can't take that away from them since they earned it under what the document said?

[Bri]

ha, this sounds like a plan I'm taking over.  20% after year 2 isn't illegal, so a terminated guy's going to stay 20 even though his cash balance plan was set up with a normally impermissible 2/20.  Meanwhile the guy listed at 60% on the takeover records obviously will have to bump to 100.