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SIMPLE IRA - many issues, many years - Fixable?


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I just found out a week ago, while having my taxes prepared, that our company offered the SIMPLE IRA plan.  I noticed the "X" on box 13 and to be honest, never looked/noticed before.  Please excuse my fail to notice previous years. :)

I started in 2012 and checked all my past W2's and all had the check from 2013 on.  I asked the owner about this and he setup a meeting with me a few days later.  After initial investigation on his part he came to the conclusion that I wasn't aware/notified of the plan and he was concerned and assured me that this was 100% unintentional.  He stated the program was established/implemented in 2008 and he's aware that some employees have been contributing and others haven't.  I should mention he's VERY hands off in these situations and relies on other parties to take care of HR types of tasks, given we are so small and we don't have an HR dept.

I confirmed with other co-workers and most all were totally unaware as well.  One EE in particular has been employed since 2005.  Since we've always had 2 facilities (corporate/warehouse), up until 2017, it's feasible to understand a potential communication issue (albeit unlikely) due to 2 sites but still not excusable.  The employer recognizes the severity of this and is working with others to understand the impact and come forward with a plan to amend/repair.  I want to stay positive and optimistic and take him at his word about the total lack of proper communication and give him the benefit of the doubt with this revelation.

My concern is how something like this (involving possibly up to 10+ employees [past/present]), spread out over that 11-year time frame and how this will possibly be rectified?  If I can assume this was an honest mistake, as the owner stated, can this be fixed by the tools/guidelines in place for this sort of thing?  My hope is that it can because I would obviously want this to be a viable program and would like the years I missed out on, to be properly/fairly compensated and have a good program going forward while I'm here.

Basic details:
Plan established 2008.
Magically appeared on my 2013 W2 and ever since then (box 13).
     I will say that the EE that has been with the company since 2005, verified that the checkbox was not checked until 2013 as well so that's a little concerning.
Notification/forms were not presented for a majority of the off-site facility EEs and can't speak for the corporate side EEs.
Employer said he signed up for the 3% matching option (I'm aware of how those work since I've been studying the ins and outs of the SIMPLE IRA program feverishly since I found all this out).
Employer did state that our broker did tell everyone but I know this is obviously not true and I haven't seen him since I started in 2012 and he's never spoke to me about anything, that I can be sure of.

Trust me, based on all I've been reading concerning similar situations, I realize the word "egregious" comes to mind but wanted to find out from the professionals in this forum if this plan is recoverable or a lost cause?

I think that explains my predicament and really looking forward to some good advice from this forum.

Thanks for the help!


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Based solely upon what you have stated, and assuming it is all completely correct...

In a general way, this (sadly) isn't all that uncommon. The employer can go through the IRS "VCP" program, which will involve make-up contributions for the "missed deferral opportunity," make-up matching contributions, and interest. If done and calculated and submitted to the IRS properly, there's no reason why the IRS wouldn't accept this correction. Many (most, all?) of the Third Party Administrators on these boards have done corrections for similar situations, and received IRS approval. Caveat - this is just general information, and please do not view it as being tax, legal, or definitive advice of any sort. 

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The error seems rather egregious, and IRS approval would seem necessary. Unless the plan is disqualified for failure to fix (doesn't generally happen, but it could), under contributions of non-elective amounts will have to be paid with interest.

Interest is usually calculated using the DOL Calculator. Each payment needs to be computed with earning up until the date of correction. The calculator is available at DOL Calculator.

See section 6.11 of Revenue Procedure 2019-19.  EPCRS 2019-19   It discussed the general fixes for these errors. There is also a Voluntary Fiduciary Correction Program (DFCP) to fix fiduciary errors to avoid civil penalties.  

As part of a restoration, employer will make elective contributions for those employees who did not receive an opportunity to participate. Missed elective deferrals and catch-ups also have to be made (by the employer) at a special rate. Search for "missed deferral." There may also be prohibited transactions if elective deferrals were not submitted timely. Employer (and perhaps too, the employees) should definitely speak to an ERISA attorney familiar with SIMPLE IRA plan mistakes. ALL years and all issued must be fixed. There could also be state law implications (especially if not fixed).

There are all sorts of notices and other things that never happened for which there are penalties. It appears that this is going to cost the employer substantially. In addition to the contributions and earnings there are all  sorts of penalties and santions that could apply. It the problems are discovered on audit (before employer gets to fix) there will be huge sanctions imposed.

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On 2/15/2020 at 12:21 PM, Gary Lesser said:

It appears that this is going to cost the employer substantially.

Definitely.  And my gut says the employer is not going to want to spend the money to do it right, whether it was in fact an innocent mistake or deliberate - this is a case where, if done properly, there would of course have been required employer contributions if employees had contributed and...well, let's say that we are all aware of cases where employees were deliberately un-informed.  I don't know where this leaves you (DR245).  

It's of some mild interest that this came about because of a mistake - technically, or not so technically. the box on the W-2 should not have been checked because you didn't actually get any contributions from the plan, and it is used to help the IRS figure out if IRA contributions are allowed, which is based on contributions made.

Ed Snyder

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I don't think the employer has much choice.

The employees should hire an "ERISA attorney" familiar with the EPCRS and SIMPLE IRA plans. There are a few! The attorney will force their hand. It could even be done anonymously. A complaint (this strong) to the EBSA would surely be looked into.

Now, if an audit comes before the fix, there could be sanctions that could add many thousands of dollars.

I say "intentional." Employer may need a criminal attorney before this is all over. Suggest it gets fixed fast.

The only alternative would be to treat all contributions as excess contributions. The cost of not fixing this (interest and penalties) could actually be higher than the restoration. But, then, there may be state law considerations (back to square one).

Hope this helps.

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