A DC/401(k) plan is sponsored by Company X. Three years after plan effective date, Company Y becomes a bro-sis controlled group with X. All of Y's ee's are collectively bargained union hence statutorily excludable from the plan.
Plan document is standardized prototype and the adoption agreement box that could be checked to exclude collectively bargained ee's from plan participation is not checked.
TPA does not ask the questions "do you have union ee's" and "are you a controlled group." TPA is responsible for plan document maintenance. As a result of TPA not asking the questions, the prototype is not amended to exclude union folks. Union employees are not offered the plan.
Four more years pass and the plan sponsor discovers this error. If the only contributions to the plan were deferral and match, does the employer deposit a QNEC (based on ADP of NHCE's for the years in question) and corresponding match for the union folks? Is that the proper remedy? Thanks for any help.
Full Version: Union Related Entity
Can we assume that company Y has it's own name and employer indentification Number? If so, it would seem that if the adoption agreement wasn't amended to allow employees of Company Y to participate, you shouldn't have a problem with disallowing union employees. On the other hand,in such a case, the non-union employees of company Y couldn't participate either.
The adoption agreement should identify the employees who are eligible to participate. If it does, and by exclusion union employees are not mentioned as eligible, I would think you are OK.
What does the TPA say?
The adoption agreement should identify the employees who are eligible to participate. If it does, and by exclusion union employees are not mentioned as eligible, I would think you are OK.
What does the TPA say?
Thanks for your response Kip. The TPA doesn't know about this situation. I recently took over this plan (I'm a CPA who's a TPA) and it has all kinds of problems.
I think I made one thing unclear in my first post, for which I apologize. The adoption agreement says that "everyone is eligible" period. Then, the adoption agreement goes on and shows two checkboxes, one for union and one for non-res aliens. If those boxes are checked, then those folks are excluded. That's how this particular prototype is worded. However, those boxes weren't checked.
The Canadian company has it's own ID#, identity, etc. But based on tax code/reg controlled group rules, X and Y are a controlled group. And unless a plan doc provides for exclusions (which this adoption agreement doesn't based on the boxes being "un-checked") - I thought the entire controlled group population had to be condsidered eligible (assuming age and service provisions are met).
Hence my concern that the Canadian entity's employees must be included in the plan. Am I right?
I think I made one thing unclear in my first post, for which I apologize. The adoption agreement says that "everyone is eligible" period. Then, the adoption agreement goes on and shows two checkboxes, one for union and one for non-res aliens. If those boxes are checked, then those folks are excluded. That's how this particular prototype is worded. However, those boxes weren't checked.
The Canadian company has it's own ID#, identity, etc. But based on tax code/reg controlled group rules, X and Y are a controlled group. And unless a plan doc provides for exclusions (which this adoption agreement doesn't based on the boxes being "un-checked") - I thought the entire controlled group population had to be condsidered eligible (assuming age and service provisions are met).
Hence my concern that the Canadian entity's employees must be included in the plan. Am I right?
Amendment to last post - I meant to say "union" not "Canadian." Been a long day.
I had a similar problem not long ago. I had a company that was a single employer under a standardized prototype (which automatically included all companies within the controlled group). The company thereafter became a brother-sister with another company which was maintaining its own plan and continued to do so after the acquisition. What should have happened at the time of the acquisition was to have each of the companies adopt a non-standardized plan that specifically excluded the other company. This was discovered a few years too late. I contacted a representative in the CAP Program who told me that an appropriate fix would be to have both companies make a submission under voluntary CAP proposing a retroactive plan amendment to put the plans on non-standardized prototypes and to exclude one another from participation. Although retroactive plan amendments are allowed only in limited circumstances, he said this was one of those circumstances. We have made those filings, but have not yet heard back from the Service.
You may consider a similar resolution of your problem (i.e., make a CAP submission proposing a retroactive plan amendment to exclude the union employees and simply pay the appicable fee). I would recommend that you call John Menas (CAP representative)(410-962-9473) and talk to him on an anonymous basis about this problem before making a submission. Although he will not be bound by what he tells you over the phone, it should give you a good indication of what the CAP people would do. My experience has been that they tend to agree in the Closing Agreement to what they tell you over the phone.
You may consider a similar resolution of your problem (i.e., make a CAP submission proposing a retroactive plan amendment to exclude the union employees and simply pay the appicable fee). I would recommend that you call John Menas (CAP representative)(410-962-9473) and talk to him on an anonymous basis about this problem before making a submission. Although he will not be bound by what he tells you over the phone, it should give you a good indication of what the CAP people would do. My experience has been that they tend to agree in the Closing Agreement to what they tell you over the phone.
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