bad plan design

[Santo Gold]

Small company started an "owner-only" 401k plan. Problem was that there was an eligible employee not covered, maybe more.

There is the owner, owner's wife, a part-timer and a full-timer. So he could have kept out the p/t (if less than 100o hours) and the owner's wife. But then again, if the document never said that, that might not work anyways. But the F/T looks like she had to be in regardless.

What is the fix here? The plan has only been around 3 years and the owner has only put in no more than $10,000 401(k) money into the plan. No other money in the plan. He could go back and bring the F/T in, with ER contributions, earnings, etc. But he would be on the hook for 3 years of missed 5500's, correct (he's never filed since it was 1-life & under $250K). That's a $1,500 DFVC filing. Then there is a VCP filing to bring the F/T. Plus the ER contrbutions for 3 years, plus earnings. And assuming the document (if there is one) doesn't exclude the owner's wife or have a 1000/1 Year wait to get into the plan, he might have to do the same for the other 2 people. Who know, maybe another VCP filing for a missing document?

I haven't seen all of the workings on this yet, but some/most/all of the above will be true and if so, its going to cost him a lot of money to fix.

But, he only has $10,000 in the plan. Is it better/cheaper to have the plan DQ'd, have what's in there now taxable to him, and re-file his tax returns for the past 3 years? Is there a way to guess/quantify what plan DQ might cost him?

Thanks for any comments.