VCP for Both Plans, or just Payor Plan?

[Oh so SIMPLE]

Old firm sponsored Old plan which included 401k benefits.

Old firm dissolved. Many, but not all of the old law partners formed New firm, for which New plan was set up, with a 401k feature.

As Old and New firm constitute a control group, those employees of Old firm that went to work for New firm when it was set up did not separate from service.

Not understanding fully the separateness of the two plans, the administrator/trustee of Old plan allowed those that did not have a separation of service and requested (on an individual choice basis; not a trustee-to-trustee transfer) to directly roll his or her benefits from Old plan to New plan. Four individuals chose to do such; all four being under age 59 1/2.

I have been asked to prepare a VCP for Old plan, so that it can correct the fact that the benefits left Old plan before those employees had distributable events and without having been provided proper notices and explanations. The correction will include the return of the funds from New plan back to Old plan.

My question is whether a VCP application needs be made for New plan also, as it received into its trust what were improperly rolled benefits and as part of the correction will be paying those funds out, back to Old plan. Is a VCP for New plan required as one is for Old plan?

[Kevin C]

Before you go very far down the VCP route, I would check the plan document for provisions dealing with transfers. In our VS document, there is a section dealing specifically with transfers and a paragraph in the Trustee duties sections that provides for transfers to another qualifed plan upon written instructions from the Plan Administrator. Then, I would check with the attorney who wrote the document to see if the transfers made are allowed by the plan provisions.

If there are other new firm employees with balances in the old plan, you may want to look into spinning off their portion of the old plan and merging it into new plan.