VCP - plan never adopted

[Guest sfatty]

Can I use VCP in this situation: a 401(k) plan was never properly adopted, but was operated for several years, then terminated. Distributions are now being made, and the adopting employer no longer exists. Can VCP be used to fix this situation? Thanks for any advice.

[namealreadyinuse]

Define "fix."

Technically, you have ineligible employes (all of them). You should definitely file as anonymous if you are going to try your luck.

If employer no longer exists and plan is being terminated, there may not be any point in filing an application that will take over a year to get resolution on and that may require re-allocation of assets or other correction.

[Guest sfatty]

Good points, thanks!

Fix = qualify a non-qualified plan retroactively.

[Ron Snyder]

You are in a no-win situation with no employer to pay the fees. If you go through VCR you will cost the employees a portion of their distribution to "fix" the situation when they end up paying both you and the IRS. And there's no guarantee that the situation is fixable.

If you are the plan trustee, you may have a duty to attempt to legalize what wasn't legally correct.

The plan was never qualified because it never legally existed. You may wish to consult with a benefits attorney as to the correct way to handle the distributions: If the amounts are treated as amounts in a nonqualified deferred compensation plan, for example, the participants would be paying taxes on them this year anyway. And the onus would be on the (now nonexistent) employer for having deducted contributions before they were vested in the employees.