Even with the best of intentions and careful administration, plan errors can and will occur. Some errors are minor and may be self-correctable. Other errors may require that your client complete one of the voluntary correction programs offered by the IRS. If a plan error has occurred, a plan sponsor must act quickly to ensure the appropriate corrective action is completed and controls are put in place to prevent a re-occurrence. Although, this is not a complete list, some of the more common errors that are found within qualified plans are:
The plan document has not been properly updated;
The plan has not operated in accordance with the plan document;
The proper definition of compensation has not been used to calculate deferrals;
The employer match has not been properly calculated or applied;
Ineligible employees have been allowed to participate (or vice versa);
Contributions have not been deposited in a timely manner;
Participants have not made timely loan payments;
Improper vesting has been applied to participant accounts;
Annual filings and reports have not been completed or distributed properly;
The plan has failed to take the proper corrective action for failed non-discrimination tests.
The IRS recently published a comprehensive 401(k) Fix-It Guide which can help plan sponsors to better understand the Employee Plans Compliance Resolution System (EPCRS). Under EPCRS, there are three components:
1) Self-Correction Program (SCP) – permits a plan sponsor to correct certain plan failures without contacting the IRS.
2) Voluntary Correction Program (VCP) – permits plan sponsor to, any time before audit, pay a limited fee and receive IRS approval for plan corrections.
3) Audit Closing Agreement Program (Audit CAP) – permits a plan sponsor to pay a sanction and correct a plan failure while the plan is under audit.
A full copy of the guide can be downloaded from the IRS website.
A plan correction will often require guidance and participation from the plan’s investment provider, record keeper, administrator and possibly legal counsel.
Source: http://www.popularinvest.com/ira-401k/news_2008-11-02-07-35-02-714.html
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