What is the correction method for not applying an integrated allocatio

[Guest]

Company A sets up a MPPP effective 01/01/96. There are 6 participants. There is a corporate Trustee. The contribution required is 10%. The allocation formula is integrated at the SS Wage Base. During all years the contribution was allocated 10% pro rata by Company A's accounting firm. Neither the plan sponsor or the corporate trustee questioned the allocation. The new TPA discovers the error.

1) What are the possible correction methods? Can a reallocation be done for the years in question, even though it would remove prior year contributions from NHCE accounts?

2) Is any harm done since the noncompliance favored the HCE's? Is there a qualification issue?

3) From a liability perspective, does the plan sponsor and trustee have an obilgation to review the work of the accountant, who is not a fiduciary?

Thanks.

[Richard Anderson]

1) I believe reallocation would be the proper way to correct. Also, the reallocation should include gains or loses. I don't think that this failure would be considered insignificant, therefore, self correction is not available.

2) Yes, this is a qualification failure. It is a failure to follow the terms of the plan document.

[Guest]

Thanks Richard. This does not seem to be a failure available for SVP. VCR would be appropriate method. Am I reading the guidelines correctly? Actually, this is a small plan with under $500,000 in assets, so cost difference is minimal. If the reallocation involves reducing contributions to terminated participants who have been paid out, would try to collect the overpayments?

[Guest]

One more thing. This is a standardized bank master plan. Does the bank's opinion letter qualify as a current determination letter? It seems that it would have to, or all standardized master or prototype plans would be ineligible for any EPCRS program. Yet, I've gotten opinions to the contrary. Any thoughts?

[Richard Anderson]

I think an effort must be made to collect the overpayment from terminated, paid out employees who received too much. The effort will likely be unsuccessful. The employer should make the plan whole (with corrective contributions) for the overpayment to terminated participants that can not be collected.

An employer who adopts a standardized prototype may rely on the letter issued to the plan's sponsor.

[RCK]

I agree with the first half of Richard's most recent comment, but need to add a clarification to the last part. The sponsor can rely on the prototype's favorable determination letter as long as they do not now, and never have, sponsored another qualified plan.

[Guest]

Another issue. Since both plans were fully funded at the 10% and 15% levels during the years in question, reallocation under the integrated formula will cause a 415 failure for the HCE's. Can the excess simply carried forward to each following limitation year and used in 2000(the first year the allocation will be done correctly) to reduce the er's contribution? This is a Corbel prototype, and I believe this is what the plan provides. Thanks.