Consequences of Disqualification

[Guest PBJ]

What is the impact on the plan sponsor and plan participants if a plan is disqualified solely because it failed to satisfy the minimum coverage requirements?

[WDIK]

Some possible consequences of disqualification:

1) Loss of deductions.

2) Plan contributions are included in participants' income.

3) Plan earnings become taxable.

Have you looked into the IRS's corrections programs?

[Peter Gulia]

In considering the Federal income tax treatment of participants, one might look to IRC 402(b)(4), which provides varying treatments based on whether a 410(b) failure is "[one] of the reasons" or the sole reason that the plan trust is not exempt from tax, and also sometimes provides a treatment that differs according to whether a participant is or was a highly-compensated employee or not.