EPCRS

[Guest nmyers]

We have an off-calendar year 401(k) "church" plan. In 2007, the plan allowed for in-service distributions from all accounts at age 60. In 2008, we recieved our updated software for EGTRRA. New questions were added based on the update. In error, in 2008 the restated plan limited in-service distributions to elective deferrals only at age 60. We reviewed the plan with the ER line by line - literally. They signed the document. In error, the administrative software was not updated to limit to elective deferrals only - although that's what the plan says. The employer is now telling us that they did not want that provision changed and it always should have been all accounts at 60.

Clearly we as the recordkeeper have to take ownership. They have a prior determination letter. We're having a difference of opinion internally on how to correct the problem.

Some of us feel that this is an operational failure it's been less than 2 years, and we should amend the plan to comply with operation using (SCP).

Others feel that we should use VCP, and we should make-up almost $100,000 of the restricted money that was distributed. (Keep in mind the plan has immediate vesting and they would have gotten that money anyway.)

Others feel that this is clearly a scrivner's error, because the administrative set up matches the ER's intent and the SPD's both allow for all contributions.

What is correct?

[Madison71]

I don't know what the correct answer is, but what is the real harm to the participants or the plan here? I would argue scriveners error. The next option would be SCP. I wouldn't correct under VCP.

[Guest nmyers]

I don't know what the correct answer is, but what is the real harm to the participants or the plan here? I would argue scriveners error. The next option would be SCP. I wouldn't correct under VCP.

Our compliance manager has reviewed EPCRS believes that any in-service distribution of ER money is considered an "Overpayment." Some participants have received all of the EE and ER dollars when requesting an in-service distribution. The correction method seems ridiculous. The definition of an overpayment looks like it might fit our situation because the plan limited in-service distribution to EE only, and the participants were able to receive all of the money against the terms of the plan document.

We of course want to be compliant, but the correction method seems extreme.

[jpod]

The correct (technical) answer is that this cannot be corrected through SCP, at least under the current version of EPCRS. (Possibly if you wait until the new Rev. Proc. comes out in June/Summer the answer will be different, but I doubt it.) However, I have a high degree of confidence that the IRS will allow correction via retro-amendment through VCP (assuming the facts stated are accurate).

[Guest nmyers]

The correct (technical) answer is that this cannot be corrected through SCP, at least under the current version of EPCRS. (Possibly if you wait until the new Rev. Proc. comes out in June/Summer the answer will be different, but I doubt it.) However, I have a high degree of confidence that the IRS will allow correction via retro-amendment through VCP (assuming the facts stated are accurate).

The facts are correct. From what we found the IRS will only let you do retro-active amendments for certain types of distributions such as loans or hardships.

Has anyone had a similar situation? I'm curious of how it's been handled elsewhere.

[BG5150]

You can't "slip-sheet" the correction?

[Guest nmyers]

You can't "slip-sheet" the correction?

Oh what a tangled web we weave.

[Kimberly S]

Since the right to an in-service distribution at a particular age is a protected benefit that is not supposed to be removed and leaving it in is apparently what the client intended anyway, I think you have a terrific case to call it a scrivener's error.

[jpod]

Note that there probably is already language in the plan protecting protected benefits, so arguably the amendment is ineffective with respect to the accrued benefit as of the date of the amendment, but that still leaves an issue with respect to benefits accrued post-amendment. IRS doesn't buy the scrivener's error theory, but it will favor relief under VCP for a retro amendment if it can be demonstrated that there was no intent to eliminate the in-service option.