Failure to Correct Top Heavy - TPA liability

[Guest mcw]

New TPA for 401(k) profit sharing plan discovers that the plan failed to make top heavy contributions for previous years. Sponsor is willing to correct now and in the future but does not want to (cannot afford to) file a voluntary corrrection with the IRS and pay the user fee and back contributions. Does the TPA have any liability for refusal or should it resign?

[stephen]

How many years of missed top heavy contributions? If it is just one or two I believe you can self correct? If more than two perhaps you put in writing your suggestion to use voluntary correction with the IRS and let the client make the decision to correct contributions and earnings and take their chances with an audit.

That way the plan is corrected, you as the new TPA are covered, and perhaps if the company can show that it would be a huge hardship to use voluntary correction and should the plan be audited the IRS would not "drop the book on them". Perhaps it's a small company and the voluntary correction fees would be detrimental to the company.