How to correct a VCP nightmare

[Guest Tax nerd]

401(k) Plan fails 415 and does not correct in a timely manner. Submits SVP (as it was called back in the day) and gets Compliance Statement. Compliance Statement requires return of excess deferrals and forfeiture of match associated with those deferrals. Employer signs Compliance Statement and everyone is happy.

Recordkeeper ignores instructions to forfeit and returns the excess deferrals and matching contributions to the affected participants. Does not tell anyone and, when participants call to question amount, tell them that it is earnings. When Recordkeeper realizes that the forfeiture account is short, it goes into the accounts of the affected participants and deducts the amounts that should have been forfeited. Does this without any notice or consent.

When discovered on audit, recordkeeper is fired.

Because the terms of the Compliance Statement were not met, does the Employer need to do a VCP for failure to comply with the Compliance Statement?

[Guest AKB]

You may want to contact the IRS person who worked on the original submission and ask what your options are. However, Revenue Procedure 2003-44 does not offer the option to extend the period for correction, after the period has expired. You may need to make a new application and request for a new compliance statement.