Anti-Cut back

[Guest swodad]

Plan provides for in-service withdrawals of rollover contributions but failed to provide the option to participants. Any ideas for corrections under VCP?

[Blinky the 3-eyed Fish]

I am confused. Are you saying only employees that are not yet participants are allowed to withdraw their rollover monies in-service or that non-rollover sources are not able to be withdrawn in-service or neither?

[Guest swodad]

Binky the 3-eyed Fish - To clarify my original query: The plan document provides that participants (employees who are eligible to participate in the plan) are permitted to take an in-service withdrawal of rollover contributions. However, the plan's SPD and in-service withdrawal forms failed to make this option available to participants. Based on my research this is a plan violation and probably correctable under VCP; however, what is the correction? What are the penalties if a plan fails to provide a form of benefit that is protected under 411(d)(6)? Any suggestions?

[Guest jfp]

If there is a qualification defect, it is an operational error. One could argue that there has been no operational error unless one or more participants actually requested an in-service w/d of rollover money but was/were turned down. Unfortunately, I doubt the IRS would buy that argument if neither the SPD nor the withdrawal forms apprised participants of their right to take in-service w/ds of rollover money.

On the other hand, I would bet that this is an error which could self-corrected at no cost, simply by revising the SPD and the withdrawal forms and making a special statement to participants that they have this right, and implementing it correctly going forward. You'll have to wade through the EPCRS Rev. Proc. to confirm this, however.