Impermissible Distribution from Money Purchase

[DLavigne]

A plan was a Money Purchase plan until 2013, when it was amended and fully restated to a Profit Sharing Plan. When the plan was a MP plan, it allowed in-service distributions at age 62. The PS document changed in-service to age 40, particularly so one participant (age 41) could take a distribution. Unfortunately, the accounts were never split to separate out the MP monies from the new PS, and the EGTRRA Adoption Agreement did not mention that in-service distributions for the MP monies were only permitted at age 62. In 2013, the 41 year-old took an in-service distribution for $73,000 which was all MP monies since the 2013 PS contribution had not yet been made.

This has recently been discovered and we're wondering how to correct this. The $73k was taken in cash and the participant is in no position to pay it back to the plan. We would like to file through VCP but we're unsure what to propose as a correction. Can we file a VCP submission simply begging for forgiveness? Does anyone have any experience with this who could offer us some advice?

Thank you.

[jpod]

I think you may be able to find an answer in Rev. Proc. 2013-12, but I'll caution that the situation is worse if the participant was married when he took an in-service distribution. EPCRS provides no protection from a spouse's claims under Title I of ERISA.