Relief from the “One Bad Apple” rule for multiple employer plans (October 1, 2019)

Topic: 
Retirement/Tax

The Church Alliance submitted a comment to the Internal Revenue Service (IRS) in response to a request for comment on its proposed regulations relating to the “one bad apple rule”.  That rule, which generally applies to multiple employer plans, provides that if one employer in a multiple employer retirement plan is non-compliant, the whole plan is non-compliant and can lose qualified plan status.  The proposed regulations provide relief from the one bad apple rule if the non-compliant employer is “kicked out” of the plan, and the assets attributable to that employer are distributed to participants.  As it is unclear whether the rule applies to 403(b) plans, we asked the IRS to clarify that the rule does not so apply.  In the alternative, if the one bad apple rule applies to 403(b)  plans, our letter argued against the kick out requirement, and suggested an alternative method of relief.