Scp

[Guest Lex]

A Plan failed to allocate profit sharing and match based on the Plan's definition of compensation. Operationally, the Plan Admin used the wrong definition of compensation.

This occurred over 3 years. Can the correction (adjusting the PS and match) be made under the SCP? Or, will a VCR filing be required?

[jaemmons]

First, you will need to determine if the error is egregious or not. Also, does the plan have a favorable determ letter? Dependent upon the severity of the error, you are looking at a VCO submission under the VCP submission procedures. You should review Rev Proc 2002-47. Since the same error has occurred over the past 3 years, you may be able to self correct the last two year, as long as it can be done by the end of the "correction period" (generally the last day of the 2nd plan year after the year of "defect"). Without a litte more detail, I can't really give a definitive answer.

[Guest Lex]

The Plan has a determination letter. The error impacted over 90% of the participants. 9/30 plan year end.

Thanks

[jaemmons]

I would self correct under SCP for those plan years that end on or after 9/30/00 (since the end of the correction period for that year is 9/30/02. For the years you cannot self correct, you will need to go through the VCO submission procedures. The only problem I see is that in the submission statement the plan sponsor must indicate administrative procedures and policies which are now in place to prevent this from occurring again. Since you would only be submitting for those years which fall out of self-correction, I am not exactly sure if this will impact the IRS' opinion. I'd be interested to see if anyone else feels that the entire error should just be included in the VCO application.