The relevant facts are set forth below:

· DB Plan initially established to benefit business owner as sole participant. Plan excludes collective bargaining unit (“CBU”) members from participation.

· The owner’s two sons work in the family business and become members of the applicable union, performing collective bargaining unit work, and participating in union benefit plans.

· Six years later, the business owner transfers ownership of the business to the sons, who each receive a 50% interest.

· At the same time, the business owner amends the DB Plan so that it will not exclude the sons: specifically, the Plan is amended to include, as eligible participants, employees who are “members of a collective bargaining agreement [sic]” and who receive either a salary or a bonus from the company.

Note: when the sons became owners/managers of the business, they by definition dropped out of the CBU. They may have retained Union cards, and may have also remained eligible to participate in the Union benefit plans, most likely as “bargaining unit alumni.” But as owners/managers they were not part of the collective bargaining unit. Therefore, it should not have been necessary to amend the DB Plan to include collective bargaining unit employees, in order for the sons to participate.

The amendment, as continued in a later restatement of the DB Plan, requires the Plan to provide benefits on behalf of employees that the business owner never intended to participate in the plan, namely, rank and file employees who receive benefits under the Union benefit plans.

It would appear that whoever amended the Plan, did so under the misapprehension that the sons remained members of the collective bargaining unit after they took over ownership and management of the business. This would seem to be a fundamental misunderstanding. Would this be a basis to retroactively correct the DB plan to restore the original exclusion of collective bargaining unit employees?

Possibly not relevant to your question, but an issue about the CBU. IRC 410( B)(1)(3) permits CBU employees to be excluded from coverage testing "...if there is evidence that retirement benefits were the subject to good faith bargaining..."

My understanding of this is: If there was no bargaining related to retirement benefits (in general), and possibly related to this plan (specifically), then such unit of employees cannot be excluded from coverage testing. I would love have some feedback about whether my synopsis is valid.

Here is a link to the IRS regs. http://www.access.gpo.gov/nara/cfr/cfrhtml...26cfrv5_00.html IRS Reg. 1.410(B)-1( c)1):
"(1) Bargaining unit. Under section 410( B)(2)(A) and this paragraph, there may be excluded from consideration employees not included in the plan who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if the Internal Revenue Service finds that retirement benefits were the subject of good faith bargaining between such employee representatives and such employer or employers. For purposes of determining whether such bargaining occurred, it is not material that such employees are not covered by another plan or that the plan was not considered in such bargaining."

Fascinating: the DOL defines a CBA, but the IRS defines "good faith bargaining."