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VCP correction - how long should we wait?

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We submitted a VCP correction back in February, 2023 for a 401k plan that had about 60 missed deferral opportunities.  We followed the recommended calculations to determine the MDO amount, the corresponding match and then the lost earnings.  We deposited these amounts into individual participant accounts where the plan account balances are held.

Its been 4 months and we have not heard back from the IRS.  These affected participants are getting antsy, some of whom are terminated and want to take their money out now.  We'd prefer to wait until the IRS says everything looks good.  

Checking whether everyone would wait until that final OK or would anyone move ahead with allowing distributions from these deposits (for terminees) since we feel we did an accurate job with the calculations.


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Without knowing all the intricate details of plan language, investments, procedures, etc., etc...

In general terms, based on what you've said, I would allow the distributions. VCP approval could take a long time, and it isn't fair to these participants to suffer for an employer error. If you assume the IRS approves, and again, based on what you've said, I assume they will, then you are good anyway. If they don't approve, either you will have overpaid them what I assume will be an insignificant amount, or if the IRS says you have to deposit more for some reason, then you make an additional payment.

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Listen to Belgarath’s reasoning.

Also, consider ERISA § 404(a)(1)(D)’s command to administer a plan according to the plan’s governing documents. If the plan’s documents provide a participant a right to take a distribution after severance from employment, one has a right (legally enforceable under ERISA § 502) to take the distribution the plan provides.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania



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