SCP or VCP

[Guest mparker2028]

:angry: OUr office had a client that refused to deposit 2001 and 2002 QNECs (also top heavy minimum contribution).

Based on lack of compliance and communication, we fired them and now they have landed back on my desk.

The Employer's bookkeeper simply did not deposit 01 and 02 contributions. Irecently found out that she also did not deposit deferrals.

They also did not get a new TPA so 03 and 04 must also be tested.

This is regular 401k plan that is top heavy, (no safe harbor)

I think the lack of depositing for 4 years consitutes eggregious failure.

Can this client self correct, go into VCP or are they doomed?

Another q - can and should they deposit contributions immediately before the method of calculating earnings is decided?

Thanks

[Guest BobK]

The time limit for correcting "significant" errors is two years after the end of the plan year.

The EPCRS revenue procedure (2003-44) does not define significant, but this case sounds to me like it might be. My suggestion would be to get an ERISA attorney to recommend corrections and submit under VCP.

[Guest B2Randolph]

I thought our office was the only one with clients like this. Guess we all have them.

No, your client is not doomed, but phrasing your VCP submission is the key - Well, gee, I discovered that we had never made the required top heavy contributions, and trying to perform due diligence, I looked more closedly and discovered that deferrals also were not being made (which by the way I am submitting under the VFC program with DOL concurrent with this VCP submission) and that we had not performed compliance testing, etc. etc. Aren't I a good fiduciary?

Seriously, my theory is that if I am having to pay anyway for VCP, I might as well include any possible thing that could be an issue, remembering that there are no true guarantees that my self correction methodology would withstand IRS audit. At least if I have a compliance statement from VCP, I am totally covered if I disclosed the problem under VCP.

Should deferrals go in now - absolutely!

A real key to all this, though, is that the Employer and his counsel write and then stick to very specific procedures for making deposits, etc.

Good luck - this should be a fun VCP & VFC submission! Hope you are getting paid up front!