Failure discovered after VCP submission

[Guest tonjer]

Our plan was submitted approximately a year ago to the IRS pursuant to the VCP submissions procedure. The plan had numerous defects. We are very close to receiving the compliance statement (the IRS recently faxed us our second draft compliance statement). We learned just last week that the plan failed the adp/acp testing for the 2001 plan year; therefore, corrective distributions and contributions must be made. The third-party administrator acknowledges that it was completely its fault. I do not see anything under the VCP procedures and/or the SCP procedures that would prohibit us from self-correcting this failure and not bringing it to the IRS' attention. Specifically, Part V, 10.07 (4) provides that if a plan sponsor discovers additional, unrelated qualification failures after its initial submission, it may request that such failure be added. If anybody feels that this issue should be brought to the reviewing agent's attention, please let me know and let me know where I can find such language.

[QDROphile]

Why would you want to leave yourself open for dispute at a later date about when you learned or should have learned that you had another defect, regardless of a literal reading of the rules? Hiding the ball is unbecoming. Even if you are square on the rules, you may be put in a bad light that could hurt for other reasons.

[Mike Preston]

If a timely correction is available to you, then taking advantage of that correction mechanism is not unbecoming. In fact, if it is less costly, it is most becoming. Certainly self correction will be less costly administratively, although it has the potential of being more costly as far as benefits go. Therefore, unless you feel that you can negotiate a better correction through the pending application I see no reason to add it to the compliance statement. On the other hand, if you have a costly correction staring at you, it may be best to attempt to negotiate a less expensive correction.

[Guest tonjer]

Our concern is two fold.

1. We are concerned that in light of the number and severity of all of the plan failures and the fact that we are so close to receiving a compliance statement that the IRS might simply not permit our addition of this failure to the submission and examine all aspects of the plan under Audit CAP.

2. On the other hand, we are concerned that if we self correct and the IRS comes in after the VCP is complete to review the plan, the IRS will come across this additional failure and state that this failure should have been added to the VCP submission and slap us with another fine.

[Guest Avaneesh]

1. You can elect not to add a newly discovered issue to the request for the compliance statement. The only effect of that is that the new issue, if discovered under audit, would not be covered by that compliance statement.

2. With respect to the possibility of conversion to audit cap, that is extremely unlikely. There typically is no limit on the number of issues that can be covered under a compliance statement. It might be beneficial for you to call the agent up and let him/her know that you may have discovered an additional issue, and get a preliminary opinion on what- if any impact- would the addition of that issue have on the fee and perhaps the time frames associated with the processing of that compliance statement. For example, if your application is a VCO type application, and your new issue is an operational issue- it is possible that your fee may not change at all. In a VCP situation, there could be some change. After you get that feedback, you may be in a position to make the decision that works best for you. Asking a question will not affect your options, either way.

Good luck.

may

[Guest rocnrols2]

Actually, you could go either way:

1) You could call the agent and ask if it is OK if you add one more issue (of course, without specifying it until after you submit it). If the agent says s/he will accept it, then go for it! Don't disclose the nature of the issue until you have obtained the agent's agreement to allow you to amend your submission and then you actually send in the submission. The agent will only become aware of the nature of the submission once it is in fact submitted. I recently did this in a VCO submission. We did one for one issue, an internal audit disclosed a completely unrelated issue and I called the agent once I knew who it was and had all of the backup. A few months went by, and we discovered more problems with the first issue, but with a different group of participants. The agent called to say she had signed off and sent it up for reveiw to her reviewer. I asked whether she would allow us to submit based on one more issue and she said yes. As far as the penalty negotiations, you might want to emphasize the errors that were the TPAs fault, so as to lessen any penalty. Although it suggests that the plan has problems, by doing it this way, you are showing the IRS you are serious about correcting the past and going forward.

2) SCP is also viable. In the end, it is a judgment call.