Written directions for a New Comparability allocation

Good afternoon,

This is a "what is your shop doing?" question.  Some years back, before each participant could be in his or her own group for new comparability contribution allocations, groups were specified in the plan document.  For example "partners, family members of partners, supervisors, clerical staff, the office manager, and Top Heavy minimum participants".  Each year, we (where I worked at that time) did a document something like a resolution of the board of directors approving a specific dollar amount of contributions per group for the year in question.  We got it signed by the employer and provided them with a copy for their records.

With the advent of each person being in his or her own group, those resolutions of the board of directors went by the wayside.  The employers I worked for stopped doing them.

My current employer was wondering if that's really okay and wants to know what the rest of you are doing.  

I did look it up in Sal Tripodi's bible, and found "Written direction could take the form of a separate letter, the acceptance of a proposed allocation report that shows how the nondiscrimination test would be satisfied, or an entry in the memo section of the contribution check."  I believe my predecessor in my current position was using the part in italics above to justify not doing the resolution anymore.  We run the numbers, we test, we send the employer a proposed contribution allocation, he accepts it and makes the deposit, say, at John Hancock in accordance with the contribution report.  Later the employer gets that contribution report and the accompanying testing in the annual report for his archives.  With that, my predecessor said that was enough, and there was no longer any need for further documentation.

What are the rest of you doing?  Thank you as always.

We send a resolution for adopting the contribution "according to the attached schedule" but we tell the client it is their responsibility to maintain the signed resolution in their minutes should the IRS request it in the future.

What Lou S said, but we also request a signed copy for our records.

IRS will ask for it in an audit.

Thank you, both of you.  I will relay this information and I believe we will start getting this done.

What rbg said.

15 hours ago, RatherBeGolfing said:

What Lou S said, but we also request a signed copy for our records.

Yes, this.  We We call it a "memorandum" not a "resolution" for whatever that is worth.

I'm interested in actual audit experience with this. We have never yet had an auditor ask for it. I'm not advocating not doing it, just saying that certainly some auditors don't request it. Also, just FWIW, I had posed this question (probably 3 or 4 years ago) to a prominent ERISA attorney, and he said he wasn't aware of any such regulatory guidance that mandated this.

All that said, I still think it is good practice

2 hours ago, Belgarath said:

I'm interested in actual audit experience with this. We have never yet had an auditor ask for it. I'm not advocating not doing it, just saying that certainly some auditors don't request it. Also, just FWIW, I had posed this question (probably 3 or 4 years ago) to a prominent ERISA attorney, and he said he wasn't aware of any such regulatory guidance that mandated this.

All that said, I still think it is good practice

I have had many auditors ask for, but I'm not sure if it has been every single one.  Might depend on region as well, different training maybe?

FWIW, I have had situations where a copy cannot be located, and as long as contributions have been made on time and in the correct amounts, they haven't made it into a major issue.

3 hours ago, Belgarath said:

Also, just FWIW, I had posed this question (probably 3 or 4 years ago) to a prominent ERISA attorney, and he said he wasn't aware of any such regulatory guidance that mandated this.

Ha.  I am old enough to remember that it was a semi-big deal when the IRS said...something about needing a contemperaneous record to make the allocations definitely determinable, but forgetful enough to dis-remember when or where it was said.  Very possibly just an ASPPA Q&A.  Would love to have someone come up with a cite.

Had a client audit a few years back that was a target audit (SH 401k plans) and they have groups as opposed to individual groups and auditor did ask for the documentation for authorizing the allocation amounts for each group.

Now here is where it gets weird - this was large medical practice that also had a cash balance plan aggregated with the SH/PS cross-tested for nondiscrimination. Since this was a limited scope/target audit, the IRS agent didn't want to have to deal with the combined testing and running it past his actuary, so he asked me to show him the cross-testing for the SH/PS portion alone, which I was happy to provide and of course passed with ridiculously high percentages.

Thanks, everybody!