A retroactive corrective amendment under Treas. Reg. §1.401(a)(4)-11(g) (11(g) amendment) is a valuable tool in correcting coverage and nondiscrimination failures. Practitioners regularly need to use such amendments to avoid disqualification. This Technical Update addresses some questions practitioners have with respect to 11(g) amendments. The March 26th Technical Update outlined the general requirements of an 11(g) amendment.
If an employer adopts an 11(g) amendment to correct a coverage or nondiscrimination failure, must the employer file with the IRS under the Voluntary Correction Program (VCP)?
No. An employer that complies with the conditions for an 11(g) amendment, including adopting the amendment within 9 ½ months after the close of the plan year, avoids disqualification and has no need to correct under VCP or any other Employee Plans Compliance Resolution System (EPCRS; Rev. Proc. 2013-12) program. Of course, if the plan misses the 9½ month deadline, the plan could need to correct the violation under VCP.
May the employer use an 11(g) amendment to correct a scrivener’s error?
Fact pattern. An employer establishes a safe nonelective 401(k) plan for 2012. The employer intends to provide immediate eligibility for elective deferrals and one year of service for the nonelective contributions. Unfortunately, the consultant setting up the plan elects immediate eligibility for the elective deferrals and the nonelective contributions and the employer signs the document without catching the error. The third party administrator catches the error after the close of the plan year (April, 2013).
No. The error reflected in the fact pattern is commonly referred to as a scrivener’s error. An employer cannot use the 11(g) amendment to correct a scrivener’s error because the amendment would reduce benefits. In certain circumstances, the courts have permitted an employer to correct a scrivener’s error retroactively. To effect such an amendment, the courts generally require the plan to provide objective evidence showing the terms of the plan are ambiguous (e.g., SPD, correspondence, collective bargaining agreement). In general, the IRS is reticent to permit an employer to reform a document because of the anticutback rule. An employer could attempt to use the VCP program for such an amendment but would be well advised to use the anonymous VCP program.
We will discuss 11(g) retroactive corrective amendments in our live 401(k) Plan Workshop. We will also provide a complete sample 11(g) retroactive amendment package to attendees. See below for details.
Retroactive corrective amendments have become a more important part of retirement plan practice as the make-up of plan sponsors changes quickly and as the IRS increases its focus on compliance. In addition to the issues discussed in this Technical Update, we will also address the following questions:
- May a cross-tested plan use an 11(g) amendment to change from two allocation groups (HCEs and NHCEs) to having every participant being in his/her own classification?
- What is the consequence if the plan sponsor does not correct within 9½ months after the close of the plan year?
- May the plan use an 11(g) amendment to exclude an HCE from the plan?
- Can you retroactively correct a coverage failure in a 401(k) plan?
- If the plan is retroactively correcting a 401(k) coverage failure by making a QNEC to the NHCEs, may the plan use the EPCRS approach and contribute only 50% of the required QNEC (missed deferral opportunity)?
- In which tax year are the contributions made with respect to a retroactive corrective amendment deductible?
- In which tax year are the contributions made with respect to a retroactive corrective amendment subject to the 415 limit?
- Can you use the 11(g) amendment to retroactively correct a current availability issue for participant loans or hardships?
- Can you use an 11(g) amendment in a safe harbor 401(k) plan?
- To address the requirement that the amendment have substance, may the plan vest added part-time employees at 20% instead of 100%?
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Upcoming Web Seminars
Automatic Enrollment, 403(b) New Pre-approved Plans, Deferral Deposits, and Plan Fee Disclosures
Visit our Web site for more details and to register online, here: www.relius.net/Events/events.aspx?Web.
Form 5500/401(k) Workshops - - Due to the April 15 filing deadline, the early registration discount has been extended for April program dates. This offer is not available with online registration. To get the $25 early discount for April programs, send an email to relius.education@sungard.com with the subject “My early registration discount." Include the program name, city, and April date for which you wish to register.
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. Visit our Web site for details and to register online here: 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. Other topics include: 401(k) plan corrections; 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 here: 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 sample completed VCP application package for an interim (or optional) amendment failure
- a sample completed VCP application package for a nonamender failure, and
- a retroactive amendment package.
Back-to-Back scheduling in most cities – Multi-program discount when you attend both programs in the same city.
Visit our Web site for more details and to register: www.relius.net/events/events.aspx?Seminar.
Fundamentals of 401(k) and Other Qualified Plans – June/July – Registration Is Open!
This 3-day program combining an introduction to 401(k) plans with a comprehensive study of defined contribution plan requirements and challenges of qualified plan administration. Speakers examine the unique administrative and testing rules essential to 401(k) plan compliance and use case studies and presentations to teach attendees how these rules apply to everyday situations. See details and register here: www.relius.net/events/events.aspx?Seminar.
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 |
