SEP sponsored by ineligible employer

[mariemonroe]

I know there is a correction method for when an employer maintains a SIMPLE Plan during a year or years when it becomes ineligible to do so.

Has anyone ever encountered a situation when an employer was ineligible to adopt a SIMPLE Plan from the outset but did so anyway and now, 10 years later, realizes there is a problem?

Any suggestions?

 

 

[PensionPro]

vcp

[ETA Consulting LLC]

Which was it; a SEP or a SIMPLE IRA?

Details are important. 

 

[Mike Preston]

5 hours ago, ETA Consulting LLC said:

Which was it; a SEP or a SIMPLE IRA?

Details are important. 

 

Who said anything about a SEP? 

[Belgarath]

The title of the post says SEP, but the question says SIMPLE. Let's assume for the moment it is a SIMPLE.

You need to do a VCP as PensionPro says. Honestly, I haven't yet read the newly updated Revenue Procedure to see if it changed this, but under RP 2016-51, Form 14568-D deals with ineligible employers. Why was the employer ineligible? If for one of the listed reasons, it is a checkbox. If otherwise, you might have to do something fancier.

[mariemonroe]

Thanks all.

[Luke Bailey]

Yes. VCP. We did one a few years. Employer had not realized was part of a controlled group so went over 100. Very simple VCP. The correction is to stop doing it.

[ETA Consulting LLC]

On 10/22/2018 at 11:32 PM, Mike Preston said:

Who said anything about a SEP? 

It was in the title: "SEP Sponsored by ineligible employer." 
 

[Belgarath]

Luke, I'm curious - was the employer part of a controlled group for longer than the transition period? I guess what I'm asking is were any of the other controlled group employees eligible and not covered? In that situation, I don't think a simple "checkbox and stop doing it" would be sufficient.

[Mike Preston]

15 hours ago, ETA Consulting LLC said:

It was in the title: "SEP Sponsored by ineligible employer." 
 

Good point! 

[Luke Bailey]

Belgarath, if memory serves me correctly there were three related companies, they all had adopted a SIMPLE with same broker, and while each separate company was < 100, the three together (which formed an unidentified controlled group from get go) had about 150. Would never have discovered it except were being acquired. We represented seller and they asked what the ERISA rep meant in their purchase agreement, and I explained and they gave me facts and I gave them bad news. We checked some boxes in VCP form, added a paragraph of explanation, said we would not do any more, and got our compliance statement in a few months with no other interaction with Service, again if memory serves me correctly. Didn't hold up deal, buyer just reviewed submission and was fine with it.

[Belgarath]

Ah, so each company adopted, therefore no eligible NHCE's were excluded. Now it makes sense to me that this was permitted under the basic check-box filing. Thanks for the additional detail.

[Luke Bailey]

You're welcome Belgarath. I think you're probably right that some SIMPLE VCPs might be more complicated, but would be interested in knowing the situations. It struck me that the IRS was pretty much behind the 8-ball with inadvertent SIMPLE noncompliance, because you had all these employees with fully vested IRAs, current and former, and it would have been VERY complicated (really, impossible) to adjust all of their returns, or even use that as a credible threat against employer. The employer's deduction was not an issue, since it had paid the money and was fully vested at time of payment, so even timing was right.