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Miner88

Correcting Missed Elective Deferrals for Terminated Participants

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A 403(b) plan incorrectly excluded some employees from participating in the plan over several years.  To correct the error under VCP, a contribution must be made for the missed deferrals and the missed matching contributions.  How are those corrective contributions made when the employees no longer participate in the plan (and don't have accounts anymore)?

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Of course, you can always create accounts for them, although if you're using individual annuity contracts or custodial accounts that might be difficult. Done all the time in 401(k) plans.

Ask in your VCP for IRS permission to send the former participants checks (or at the participant's request, direct transfers to other 403(b)'s or IRAs) the funds that you would otherwise have to deposit for them, and get the IRS to state explicitly that these amounts will be eligible rollover distributions, even though they may not have ever actually hit an annuity or custodial account. I'm sure the IRS will give you that. Of course, if some of the folks you reach out to do not respond, you may eventually need to open accounts of some sort for them. For these, ask IRS to be able to deposit into IRAs. There are IRA custodians of course who will open IRAs even if the individual does not establish the account and sign his/her own paperwork.

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