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Correcting Common Qualified Plan Errors


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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. If you suspect that a plan error has occurred, please do not hesitate to contact Steve Lamm at Hicks Pension Services for more information and guidance.

    Contact Information
    Steve Lamm, APA
    Pension Consultant
    Hicks Pension Services
    1 Ponderosa
    Irvine, CA 92604
    (949) 231-9314
    (949) 861-8385 (fax)

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