VCP - participant culpability?

[401(j)]

Hello all,

Is anyone aware of any precedent that would change a plan's responsibility under VCP procedures based on assigning fault to the participant?

The specific situation I have is an employee who sought to increase his contribution level in 2011, but the HR department never made the change until it recently, when it discovered the oversight on its own. It now wants to know whether it can save any make-up costs by arguing that the employee went two years (and counting) without noticing or commenting on the lack of change in contribution and therefore bears some responsibility for the mistake.

I'm thinking the answer is a resounding no, but I figured I would at least throw the question out and see if anyone has ever come across anything to the contrary. Thanks in advance, everyone!

[ETA Consulting LLC]

I make that argument all the time. At some point, it is no longer an oversight but a potential free ride. What that point is; I don't know. Just think, If I can give an request and it's not followed to the letter; what would compel me (as a participant) to come forward and request a correction when I can wait a couple of years in order to build up the corrective amounts.

This, as any other thing, is merely an argument to make. Being an argument, there are 1 million sides; and this is just one. With that said, you could file with the IRS and recommend a different correction (e.g. reduced make-up amount).

Good Luck!

[WCC]

see IRS EP phone forum September 7, 2012 slide 21. I don't like the idea of a free ride either, but this is one IRS agents answer to that question.

http://www.irs.gov/Retirement-Plans/Phone-Forums-Retirement-Plans

also copied below:

Note: A Plan Sponsor cannot avoid liability to make corrective contributions for the missed deferral opportunity by making its employees responsible for checking pay records to ensure deferral election has been implemented. The employee’s elective deferrals (the sum of deferrals actually made and the missed deferrals, for which a corrective contribution is required) cannot exceed the 402(g) limits and must comply with all other applicable plan limits/requirements.

[ETA Consulting LLC]

True. Remember, through VCP, you can ask for "anything". You may not get it, but you can ask for it. The chances of getting what you want may increase as you are able to demonstrate how the recommended correction would cause a significant business hardship.

Good Luck!

[jpod]

Sometimes you have to hope that sanity will prevail at IRS. If this is something other than a very small plan (e.g., at least 25 or more NHCEs with account balances, preferably some large ones), and if the person slipped through the cracks for 2 or 3 years or more and he/she never said anything, an employer could legitimately consider the approach of not correcting, with the expectation that the IRS would not disqualify the plan if the issue was spotted on an audit. The windfall to the employee of fixing via 50% QNECs plus earnings in this scenario is simply too much to stomach in some circles. As to Title I liability, I think there would be excellent defenses to any claim by the employee, at least enough to prevent a lawyer from taking the case on a contingency basis.