Disqualified plans - frequency

[Guest AVH@MLS]

The spectre of 'disqualification' haunts many of our plan committee meeting. Sometimes I think it is used too frequently. Anyone have an idea of how many plans actually do get disqualified? And for what reasons?

[Lori Friedman]

I'm not going to back up my reply with any statistics or references, but I will say that disqualification is the path of last resort. Who gets hurt the most when a plan's disqualified? It's the participants, who are powerless with respect to the plan's operation and administration. It isn't the intent of Congress or the Dept. of Labor to cause unnecessary harm to plan participants.

Having said that, your plan committee's concerns really don't add up to a bad thing. It sounds as if the fiduciaries are extremely cautious and take their duties very seriously.

[namealreadyinuse]

The only time it really happens is when it is intentional to unwind a bad deal.

It is so rare because it will always be cheaper to fix the problem (at about 20% of the overall disqualification cost). That is still a HUGE amount of money and should really be your motivation. You should strive for compliance to avoid the 20% MPA the IRS requires to fix problems it catches.