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Initial failure to adopt a Qualified Plan


JustMe
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1 hour ago, JustMe said:

Has anyone had any luck with an owner-only plan VCP submission to retroactively initially adopt a plan?

No, and it isn't likely that failure to adopt a plan is subject to VCP.  What actually happened?

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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yes - I had one. they had an unsigned 401(k) plan document but could not locate a signed copy. There was some back and forth, but it was approved. I don't know if it was just luck or if they tend to approve them if presented favorably. That one was approved last year. 

I have not tried again since. 

I'm a stranger on the internet. Nothing I write is tax or legal advice. 

I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?

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7 hours ago, justanotheradmin said:

yes - I had one. they had an unsigned 401(k) plan document but could not locate a signed copy. There was some back and forth, but it was approved. I don't know if it was just luck or if they tend to approve them if presented favorably. That one was approved last year. 

I have not tried again since. 

I take it the argument here was that they did adopt a plan, just that it can't be found.  I would say that is factually different than "can I adopt a plan retroactively" for 2019 (which we can now do for 2020), which is how I read the original posting.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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13 hours ago, Larry Starr said:

I take it the argument here was that they did adopt a plan, just that it can't be found.  I would say that is factually different than "can I adopt a plan retroactively" for 2019 (which we can now do for 2020), which is how I read the original posting.

Ah, I didn't read the original post that way, but now I see how that might be the question. I do agree that's factually different than what I had. In my VCP circumstance the sponsor had the plan account for a number of years, contributions were made etc. They were not trying to adopt a plan in the year immediately following with a retroactive effective date just the year prior. And I agree, that scenario wouldn't fly with VCP (at least I wouldn't bother to try). 

I'm a stranger on the internet. Nothing I write is tax or legal advice. 

I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?

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Thank you for your responses.  Just an FYI, I spoke with an IRS agent this morning and she said the IRS receives these requests all the time and that they approve them when an employer can show intent to open the plan with items such as corporate minutes, email discussions, deposit of funds to a plan trust, etc.  I explained that it is an owner only plan and she said that didn't change her response.  So, here's hoping!

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  • 2 weeks later...

Note that if it is a corporation and they have minutes of adoption by board, it is adopted whether officer executed or not, thus the IRS's readiness to accept in VCP. As for the rest, lawyers can sometimes convince IRS based on state law that for one owner or other closely held corporations, state law relaxes formality requirements, so email exchanges, etc., suffice. Ditto for partnerships. Sole proprietors might be harder, but you can always try.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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  • 1 year later...

I received a VCP compliance letter this week for a failure to adopt a plan.  The broker switched firms and thought someone at the former firm had taken care of the documentation.  Correction was a simple adoption of a plan document.  Under 2019-19, many plan document failures can be cured by self-correction.  The initial failure to adopt a plan requires VCP to correct.

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  • 2 months later...
On 5/28/2021 at 10:57 AM, Alan Kandel said:

I received a VCP compliance letter this week for a failure to adopt a plan.  The broker switched firms and thought someone at the former firm had taken care of the documentation.  Correction was a simple adoption of a plan document.  Under 2019-19, many plan document failures can be cured by self-correction.  The initial failure to adopt a plan requires VCP to correct.

Did you just submit the 8950 and 14568, or did you also include one of the schedules? I have a similar issue and I don't see how any of the schedules apply.

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  • 8 months later...

The initial failure to adopt a plan is not eligible for self-correction.  See Rev. Proc. 2021-30 section 4.01(b).  There's no similar ineligibility for correction under VCP.

Benefits Vet, you are right that the schedules don't apply, so only 8950 and 14568 are needed.

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