VCP filing for incorrect match

A match formula was not applied correctly and all participants were short on receiving their match for the 2017 plan year.  It is now 2020 so we are passed the 2 year window and we are considering the errors significant.

Is it correct that the employer should deposit the missing contributions plus an earnings amount as soon as possible or should the VCP be filed and wait to hear from the IRS before taking any corrective action?

Thank you

I should have added the following question:  The same error occurred in 2018 and 2019.  Since those 2 years are within the 2 year window, they can be handled via SCP.  However, would it be required to file those under VCP since the problem started in 2017?  To me it is a separate problem for each plan year and so SCP should be used for 2018 and 2019.  In addition, the assets were under $500,000 in 2017 but over in 2018 and 2019, which would make the user fee jump from $1,500 to $3,000, which we would like to avoid.

Finally, if we do have to file VCP for all 3 years, does the user fee apply to each year (3 user fees) or is 1 user fee all that is needed (and would that fee be $1,500 or $3,000)?

Thank you

On ‎9‎/‎9‎/‎2020 at 2:06 PM, Santo Gold said:

Is it correct that the employer should deposit the missing contributions plus an earnings amount as soon as possible or should the VCP be filed and wait to hear from the IRS before taking any corrective action?

You can do either, Santo Gold. The benefit of waiting is that the IRS may have a somewhat different take on what should be contributed and  how it should be allocated, e.g. earnings calculation. The benefit of contributing right away is that you cut off the liability to contribute earnings for the period after the contribution date. I would probably wait.

On ‎9‎/‎9‎/‎2020 at 2:49 PM, Santo Gold said:

The same error occurred in 2018 and 2019.  Since those 2 years are within the 2 year window, they can be handled via SCP.  However, would it be required to file those under VCP since the problem started in 2017? 

I think you can self-correct for the two years within the self-correction period.

I thought one of the requirements for use of VCP is to correct all instances of similar failures.

20 hours ago, Mike Preston said:

I thought one of the requirements for use of VCP is to correct all instances of similar failures.

But they would be, right? Just using SCP for the years eligible for that, and VCP for the older year. Rev. Proc. 2019-19 is year by year, I think. I don't recall anything in it saying that if you had the same significant failure in more than one year, and some were within the SCP period, and some not, you had to use VCP for all.

FWIW, I would include it all in the VCP, because what could it hurt?  And, this way, you get a comprehensive correction letter that protects your client from having an IRS auditor come around 2 years later on the self-corrected stuff and saying you did something wrong.  And you give the IRS all the information in your filing that they will ultimately request, because, as Luke said, they are going to want to see that you corrected all years.  So, this will give you a "payoff" for doing all the work.

As to the correction timing, the value of correcting earlier is that you stop the bleeding, i.e., interest charges.  The negative is that, if you are correcting in an impermissible manner, you create a new failure!  On the issue that you are correcting, it's pretty cut and dried as to how to fix.  I assume you are following the EPCRS rules for the earnings calculation.  So, fix it now.  There's very little risk.

Exactly. 

User fee is based on the most recent 5500, not the year of the error.  You are stuck with the $3,000 fee, regardless.