If a plan sponsor does not correct a coverage or nondiscrimination failure within the 9½ amendment period, the plan sponsor would need to correct the failure through the Voluntary Correction Program (VCP) under the Employee Plans Compliance Resolution System (EPCRS) procedure, Rev. Proc. 2013-12. Under EPCRS, the plan sponsor would implement the same correction method—adopt a retroactive corrective amendment. Two additional conditions apply to an EPCRS retroactive corrective amendment: (1) an earnings adjustment would apply to corrective amounts, and (2) the plan sponsor would need to file a VCP submission with the IRS. A failed coverage or nondiscrimination test is a demographic failure which is not eligible for self-correction under self-correction program (SCP).

In order for regulations to recognize an 11(g) amendment, the amendment must satisfy the following conditions:

1. The amendment cannot reduce a participant’s benefit based on the terms of the plan in effect immediately before the amendment.
2. The amendment must be generally effective as if the amendment were in effect on the first day of the plan year being corrected.
3. The employer must adopt the amendment within 9½ months after the close of the plan year.
4. The additional allocations or accruals must satisfy the coverage and nondiscrimination requirements on their own.
5. If the amendment is to correct the current availability of a benefit, right or feature, the amendment cannot be part of a pattern of amendments to correct repeated failures and the amendment must remain in effect through the end of the first plan year beginning after the date of the amendment.

The question that many practitioners have asked is whether a safe harbor 401(k) plan can adopt an 11(g) amendment given the IRS’s strict interpretation of mid-year amendments to safe harbor 401(k) plans. The IRS has taken the view that a mid-year change to a safe harbor 401(k) plan will violate the 12-month and the notice requirements. See Treas. Reg. §1.401(k)-3(e)(1), IRS Announcement 2007-59, and Notice 2010-84, Q&A 18. Although the IRS has created a few exceptions to the restriction on mid-year amendments (e.g., plan termination, Roth, reducing or eliminating match or nonelective contributions), it continues to apply a strict interpretation of the rule.

Despite the IRS’s strict interpretation of mid-year changes to safe harbor 401(k) plans and the unresolved conflict between the two rules, we believe that the restriction on mid-year changes does not apply to 11(g) amendments. Safe harbor 401(k) plans would be forced to correct nondiscrimination or coverage failures through EPCRS otherwise. At the most recent ASPPA National Conference, an IRS official agreed that a safe harbor 401(k) plan could use an 11(g) amendment to correct a coverage or nondiscrimination failure. While the IRS answer is informal and cannot be relied on, it does give practitioners an indication of current IRS thinking on the issue.

We will discuss the parameters of the 11(g) retroactive amendment in our 401(k) Plan Workshop. We will provide attendees a sample 11(g) retroactive amendment package (including amendment, resolution and SMM). The Workshop also will include sample completed VCP submission packages (forms, application, amendment and identified Code provisions) for a failure to timely adopt for:

• Interim amendments
• Nonamender + interim + optional amendments
• For 403(b) plans, the final 403(b) regulation’s written document requirement

Form 5500 Workshop 2013, April – June
One of the primary purposes of EFAST2 was to make IRS and DOL enforcement more timely and effective. Every indication suggests that the government is following through on its promise. If you have wondered why the IRS or DOL is auditing or investigating your clients’ plans, you probably need look no further than the answers and information included on the Form 5500. EFAST2 now allows the IRS and DOL to “target more accurately and effectively those plan filings we want to go after." In addition to helping you understand the Form 5500 enforcement issues, we will address those troublesome 5500 filing issues and explain how to resolve those frustrating and time-wasting errors. Visit our Web site for details and to register online - www.relius.net/events/events.aspx?Seminar.

401(k) Plan Workshop 2013, April – June
This year’s 401(k) Plan Workshop will discuss the likely changes Tax Reform will have on retirement plans. Using examples and case studies, we also will describe the changes in IRS’s plan correction program (EPCRS) and how to utilize the program to effect plan corrections. Other topics include: in-plan Roth transfers; retroactive amendments (11(g) amendments) to avoid plan disqualification; tax consequences of plan disqualification; identifying, testing amending benefits, rights and features, current developments; and an interesting explanation of what the IRS likely will do with the information they obtained in their recent surveys of 401(k) plans. Visit our Web site for details and to register online - www.relius.net/events/events.aspx?Seminar.

Added Value! – Attendees of each Workshop receive a complimentary registration for a Web seminar (recorded) – a $190 value.

• Form 5500 Workshop attendees receive a complimentary copy of responses to 40 FAQs submitted by attendees of Relius Education’s Schedule C Web seminars.
• 401(k) Plan Workshop attendees receive a copy of two sample completed VCP application packages and a retroactive amendment package.

Upcoming Web Seminars - 10 Available Events: 409A & 457(f), ERISA Recapture, 403(b) Plans, Earned Income, 457(b) Plans, and more. Visit our Web site at www.relius.net/Events/events.aspx?Web for more details and to register online.

Save the Date:
Chicago Advanced Pension Conference – August 28-30, 2013
Just for ERPAs Workshop, Chicago IL – August 27, 2013
Event details and online registration will be available in June on our Web site: www.relius.net/Events/seminardetail.aspx?CID=26172