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Belgarath

Successor plan rule violation

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So let's assume there is a successor plan rule violation - 401(k) or 403(b) plan, doesn't matter for purposes of this question. All participants in the terminated plan rolled their assets over to the new plan, which was established prior to the 12-month period.

How would one even present this for correction under VCP? Anyone tried this, asking the IRS to allow it? Etc., etc.? - I don't recall ever seeing this - successor plan questions usually come up prior to the termination of the first plan. Any "fixes" that the IRS approved? I wouldn't think that this is very common, but maybe it is.

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26 minutes ago, Belgarath said:

How would one even present this for correction under VCP?

What is there to correct?

Having a successor plan is not a violation in itself, it just creates a problem if you made certain distributions from the old plan that are no longer distributable due to the successor plan.

Or am I missing something else?

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No, but the violation technically renders any rollovers of the elective deferrals invalid. Suppose everyone rolled over their account balance. So my question is, what methods might be employed and approved by the IRS to remove this result? I suppose one could technically somehow get the invalid rollovers restored to the terminated plan, but this seems realistically impossible. So I'm interested to see if anyone has experienced this, or knows of a valid correction method? Thanks. 

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If the old plan had been merged instead of amounts rolled over, protected features of the balances (distribution timing, etc) and distribution restrictions (no deferrals or SH for in-service prior to 59.5) would have stayed with the merged amounts.  If everyone rolled over to the new plan, the $ are there.  The only thing needed to put the current plan where it would have been if the improper distributions had not been made is to reattach those features to the amounts rolled in.  I think that would be your correction.

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On ‎7‎/‎31‎/‎2019 at 1:52 PM, Kevin C said:

If the old plan had been merged instead of amounts rolled over, protected features of the balances (distribution timing, etc) and distribution restrictions (no deferrals or SH for in-service prior to 59.5) would have stayed with the merged amounts.  If everyone rolled over to the new plan, the $ are there.  The only thing needed to put the current plan where it would have been if the improper distributions had not been made is to reattach those features to the amounts rolled in.  I think that would be your correction.

I think that if you submitted to VCP, that's precisely the correction you would get, so sort of a slap on the wrist. The reattachment of any distribution restrictions, however, would require a plan amendment and would take away a right (e.g., right to immediate distribution from rollover account at any time and age, if the plan has that feature), and I'm dubious that such an amendment would meet the "all positive" requirement for SCP amendment under 2019-19.

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