Correcting a 409A Error

[ERISA-Bubs]

We just discovered an operational error in our Nonqualified Savings Plan (NQSP) that goes back to when 409A was first effective.

Given that you can only correct errors under the 2008-113 correction procedure going back a couple years, does it even make sense to do that. If a participant is corrected for 2015 and 2014 but still has amount deferred in 2010, wouldn't all the deferrals (even 2015 and 2014) be subject to the penalty?

If we terminate the NQSP now and wait a few years, can we wait a certain amount of time and start a new NQSP or will it be aggregated with the current NQSP? Will they be aggregated as long as they both exist even if one has been frozen for years?

I understand IRS audits generally only go back 3 years. If that's true, is it really only the last three years of contributions that are at risk for penalty? If I freeze the plan now and make it 3 years without getting caught, am I generally in the clear?

[QDROphile]

As for not getting caught, what about the employer's reporting requirement? Fraud is a very nasty prospect and does not have a three-year statute.

[ERISA-Bubs]

As for not getting caught, what about the employer's reporting requirement? Fraud is a very nasty prospect and does not have a three-year statute.

Wait, is there a mandatory reporting requirement? If we think we have a possible violation, are we required to report that and invite an IRS agent in to verify? Or are you saying we just need to do our tax reporting as if there is a violation? Isn't the penalty on the Participant -- so what exactly would the employer need to report?

[jpod]

Yes there is employer reporting (do a word search through the W-2 instructions).

[XTitan]

You may also want to review the proposed regulations on income inclusion:

https://www.irs.gov/irb/2008-51_IRB/ar14.html