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EPCRS correction of SIMPLE plans


Guest HRlawguy
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Guest HRlawguy

Does the EP Compliance Resolusion System of Rev Proc 2001-17 apply, expressly or by extension, to design and operation problems for SIMPLE Plans?

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Not if it is a SIMPLE IRA. However, it is possible that an IRS district office would use the general delegation order dealing with closing agreements, D.O. 97.

If a Simple 401(k), then a bad allocation could possibly be corrected under EPCRS (likely), or as a "mistake of fact" (although not expressly stated to be one (not likely)), or if contributions are conditioned upon deductibility and the contributions are subsequently denied (likely).

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Guest HRlawguy

The plan is a SIMPLE 401(k). The two identified problems are that the employer made excess non-matching contributions for all employees (3% one year, 4% the next year and are now on a 5% rate). The plan as adopted does not provide for matching contributions. In addition the plan as adopted used a $0.00 threshold for the mandatory nonmatching contributions, but contributions were not made for some employees who made less than $5,000.

If you may have any ideas about what type of remedy the IRS might consider permitting under EPCRS, your input would be greatly appreciated.

Obviously, the employer needs to adopt a more generous type of plan if it wishes to continue making such contributions.

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Guest HRlawguy

Correction, the employer adopted a SIMPLE IRA Plan under Section 408(p), they were misusing the phrase 401(k) because of the similarity due to employee deferral elections.

As such, it appears that the "plan" falls outside of Rev Prov 2001-17, but Section 2.02 states that "Submissions related to Simple IRAs are currently being accepted by the Service on a provisional basis outside of EPCRS."

I'm not sure what this means in practice. I've attempted to reach the appropriate VCP office, but haven't gotten any response. Are submissions "outside of EPCRS" still sent to the VCP offices or do they need to go elsewhere? Am also wondering what kinds of principles might be applied in an acceptable submission. Thanks for any suggestions.

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Guest HRlawguy

Just to update the group. My call to the area VCP office was forwarded to the VCP National Office listed in 11.12 of Rev Proc 2001-17. That office is handling the "provisional" submissions for SIMPLE plans, but I am informed that there have been very few submissions and none involving excess employer contributions. It was suggested that we model the proposed correction submission on the principles applicable to SEPs under the Rev Proc.

If anyone has had any experience with excess contributions to a SEP or SARSEP for multiple years, I'd be very interested in what correction mechanisms may have worked. My major concerns relate to the fact that the sponsor does not have control of the IRA accounts to which contributions have been made and likely has little information about investment gains or losses for calculating proposed distributions. Moreover, with applicable excise taxes being completely excluded from the EPCRS program, we are very anxious about how best to handle these issues to minimize complications for participants.

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