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The New 'Umbrella' Closing Agreement

Susan Diehl

As many of you know, we are all down to the wire for restatements of our employers’ qualified plan documents. This includes, of course, 401(k)s, profit-sharing, money purchase and — for the employers we all deal with — the “401(a)” plan for our governmental and tax-exempt employers.

Of course, a “401(a)” plan is the terminology that has been used by the 403(b) community for decades as well as their employers, when in fact we know that the plan itself is either a profit-sharing or money purchase plan.

These qualified plans must be restated every six years to maintain their reliance on the approved status of their plan. If they don’t, it is possible that the plan could be “disqualified” and all of the assets taxed to the employees. The deadline for this most recent restatement is April 30, 2016 — right around the corner! This current restatement is for the Pension Protection Act, and known as the “PPA Restatement.”

While we were working on a financial institution’s restatement, we came upon a unique correction that the institution was working on with the IRS. It turns out that is now being called the umbrella closing agreement.”

This new option permits financial institutions and other service providers that offer a plan document to request a closing agreement on behalf of all clients that missed the deadline for adopting a pre-approved plan.

Financial institutions/service providers can submit proposals for an umbrella closing agreement that cover clients affected by the failure to update their plans by the deadline. These would be similar to a group submission under the IRS’ voluntary correction program (VCP), but under these closing agreements the organization doesn’t need to have made a systemic error.

While employers may continue to make VCP submissions for correcting a failure to restate their plans by the deadline, the IRS invites financial institutions/service providers to submit proposals for umbrella closing agreements to correct the same failure on a larger scale by addressing employers affected by the failure as a group. Remember that individual employers that submit under VCP pay a fee that is based on the number of eligible employees that they have. These fees range from $500 (20 employees) to $15,000 for over 10,000 employees. The $250 fee for this new program is cost-effective and can save employers the headaches involved with submitting under VCP.

The requirements of this new program are:

  • a minimum of 20 plans must be covered by the agreement;

  • the fee is $10,000 for the first 20 plans plus an additional $250 for each additional plan;

  • a maximum fee of $50,000 (similar to the group submission fee under VCP);

  • employers must execute a consent to participate in the program;

  • employers must have the prior restatement document (in this case the EGTRRA restated document) or include this late adoption in the closing agreement; and

  • correction of the document restatement failure by executing under the PPA the service provider’s pre-approved document.

Financial institutions or other service providers that apply and are approved will have until the later of 120 days from the closing agreement execution date or May 1, 2017, to provide a list of employers who will be covered by the closing agreement and to pay any additional fees that may apply.

Susan D. Diehl, CPC, QPA, ERPA, is President, PenServ Plan Services, Inc.

Opinions expressed are those of the author, and do not necessarily reflect the views of NTSA, or its members.

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