Rectroactive Amendment Under VCP

[Guest Thornton]

A plan has always used permitted disparity to allocate the profit sharing contribution. When the plan was restated for GUST, a pro rata allocation method was selected (prototype). The administrator continued to apply permitted disparityas provided for in the pre-GUST document. We were recently retained as TPA and found the error.

1) Can the problem be corrected by retroactive amendment filed under VCP? My initial response was "sure, why not". However, it concerns me concern is that the NHCEs would have received higher allocations under pro rata, which the document required. It can be argued that the rectroactive amendment will benefit only HCEs. Will this be ok with the IRS?

2) Is the answer to #1 is yes, can the streamlined application procedures be used?

[Belgarath]

I think it is very unlikely that the IRS would permit a retroactive amendment to conform the document to permitted disparity allocations, when the document was previously amended to provide otherwise. The employer is stuck with paying the make-up amounts to make the participants whole. Whether the employer then attempts to collect from another party is a separate matter.

[QDROphile]

Belgarth is probably right, but you should at least call and see if the IRS will entertain the idea. I have had success under VCP with the clerical error theory. Everything but the plan document remained in line with the former plan term, sot eh plan term change was an obvious error. I think you are dead if the SPD reflects the change.