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SIMPLE IRA - Omit Former Employees - Loopholes?


DR245
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Are there any legal loopholes that an employer can use to not pay former employees for a SIMPLE IRA plan that was not administered properly (at all)?  For example, an employee was at the company for 5 years and during this time there was a SIMPLE IRA plan in place but the employer failed to notify any employees for 12 years.

Fast forward to 2020 and the employer was notified and fixed the mistake for the current employees but never contacted any former employees. 

When the employer hired an ERISA attorney to handle the VCP, is there anything available to the attorney to NOT consider past employees, especially when they could be easily contacted?

Thanks

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Well, at least in theory, you can attempt almost anything in a VCP filing. However, whether or not it will be approved is another story. Did the IRS already approve such a correction?

Without full facts, census, information from the VCP filing itself, it's nearly impossible to say. And the IRS can only approve or not based upon the information submitted in the filing, which may or may not be accurate.

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I'm not sure I'm reading your reply correctly but what if the employer excluded past employees from the VCP filing as a way to not pay them?  Would this even get past the ERISA attorney though?  Or would the ERISA attorney first demand to see all the W2's for the time period of the mishandling of the program and start there?

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I guess then I was looking for a more general answer as to how a normal resolution would be administered for former employees, given no unusual circumstances other than having worked there for a period of time while the plan was in place.  

It was my understanding that former employees were treated the same was as current in terms of making them whole but perhaps not.

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Let me answer your question this way. An attorney doing the VCP filing who knows that the past-employees should be addressed in the VCP, but purposefully omits them anyway, is committing fraud in front of the IRS.  That, and the possibility of severe sanctions from the applicable state bar.  If a client asked me to file a VCP to exclude the past employees after I had explained to them why they should be included in the application, I would simply resign.  

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Ok, that is what I "basically" thought that a normal VCP would include.  As a current employee of this company, I've seen former employees omitted and I, for the life of me, can't figure out why and assumed there was some legal loophole to exclude my former co-workers.  There must've been something that the employer and ERISA attorney agreed to, for one reason or other, to exclude them?  

Thank you for answering in such a way that adds validity to what I thought all along.

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7 hours ago, Belgarath said:

Well, at least in theory, you can attempt almost anything in a VCP filing. However, whether or not it will be approved is another story. Did the IRS already approve such a correction?

Based on my experience in VCP, the IRS would not allow you to not correct for former employees.

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On 12/22/2020 at 1:00 PM, DR245 said:

Ok, that is what I "basically" thought that a normal VCP would include.  As a current employee of this company, I've seen former employees omitted and I, for the life of me, can't figure out why and assumed there was some legal loophole to exclude my former co-workers.  There must've been something that the employer and ERISA attorney agreed to, for one reason or other, to exclude them?  

Thank you for answering in such a way that adds validity to what I thought all along.

I can't speak to what the attorney knows or doesn't, but I think it's pretty clear why the employer is trying to skip correcting the issue for former employees.  And, just a guess, but it's likely the reason so many were improperly excluded in the first place.

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