Situation: Controlled group with one entity having a standardized plan that did not cover other entities in the controlled group (many years at issue) - but those other entities had their own nonstandardized plans (all 401(k)s) covering their employees.

I know we have to go through EPCRS, but . . .

Question: Has anyone had any luck arguing that this is not a failure to cover eligible employees (directly covered by EPCRS), but rather a retroactive plan document amendment is appropriate because employees that were not covered by the standardized plan (but should have been) were covered by their own nonstandardized plan?

We have filed a VCP for a client indicating that they need a retroactive amendment to a nonstandard proto document for this exact reason. We have not received a response yet. I'll keep you posted.

Thanks! I appreciate the response.

Yes, it has been done. But the IRS will want to make sure that the participants who were omitted from coverage were never advised that they would be in any communication. This shouldn't be a problem since those not covered would ordinarily not have been sent an SPD. By the way, I think this is a very common mistake-- one that is caused by a combination of unreasonable drafting restrictions imposed on standardized plans by the IRS and clueless plan consultants who blindly advise their clients to establish these plans. This is the number one reason why I never advise clients to set up a standardized plan.

Thank you you very much for your help with this. Here's a follow-up if anyone can help me: If we have a standardized prototype plan, and we submit (in EPCRS) a proposed amendment to retroactively correct the plan to actual plan operation - do we turn the plan into an individualized plan - and if so, what do I have to worry about.

I think you end up with a plan that is what you end up with. Sounds strange, doesn't it? Basically, if you amend the plan (retroactively) by adopting an individually designed plan you end up with an individually designed plan. If you amend the plan (retroactively) by adopting a non-standardized prototype, you end up with a prototype - non-standardized variety. There shouldn't be any other issues. At least no other issues that you wouldn't have had in the absence of the retroactive amendment.