Excluded Eligible Employees

[Randy Watson]

Plan excluded a certain class employees that were actually eligible to participate. This has been going on for the last 8 years. The plan has filed 5500s for all years, so the statute of limitations on the IRS side of things has been tolling. We could correct just for open plan years. But what about DOL audits? Couldn't the DOL come in and audit years beyond the last 3 and require corrective action and impose sanctions?

[QDROphile]

I don't think you are going to correct for only the open years under EPCRS.

[Randy Watson]

I don't think you are going to correct for only the open years under EPCRS.

Why not?

[Kevin C]

Rev. Proc. 2008-50, Section 6.02. Correction principles. Generally, a failure is not corrected unless full correction is made with respect to all participants and beneficiaries, and for all taxable years (whether or not the taxable year is closed). Even if correction is made for a closed taxable year, the tax liability associated with that year will not be redetermined because of the correction. Correction is determined taking into account the terms of the plan at the time of the failure. Correction should be accomplished taking into account the following principles: ...

[Randy Watson]

Rev. Proc. 2008-50, Section 6.02. Correction principles. Generally, a failure is not corrected unless full correction is made with respect to all participants and beneficiaries, and for all taxable years (whether or not the taxable year is closed). Even if correction is made for a closed taxable year, the tax liability associated with that year will not be redetermined because of the correction. Correction is determined taking into account the terms of the plan at the time of the failure. Correction should be accomplished taking into account the following principles: ...

Good answer.

[jpod]

You may wish to dig deeper and see if there is evidence of a consistent well-documented employer intent to not cover that class of employees, as evidenced through SPDs and other communications. Assuming no 410(b) problem, correction via a retroactive amendment and VCP may be an option. For example, I have had cases, resolved successfully through a retro plan amendment and VCP, where a standardized prototype was used but the employer's intent not to cover all controlled group members was consistent and evident. I also had a case, resolved successfully through a retro plan amendment and VCP, where a lawyer botched a plan amendment so that part-timers would be immediately eligible along with full-timers, whereas the consistent practice and intent was to require part-timers to complete a year of service.

[Gudgergirl]

I just completed a VCP filing on this same issue. You have to correct for all plan Years you omitted the otherwise eligible employees.