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Correcting a Governmental Employer's Impermissible Adoption of a 401(k) Plan
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Oct. 26, 2018
A governmental employer impermissibly adopted a 401(k) plan, in spite of not being eligible for the grandfather rule. It appears that this situation is not one contemplated by EPCRS, inasmuch as the plan as a whole is qualified, but the purported elective deferrals would not be a cash or deferred arrangement (and thus would be after-tax). The client would like to follow the procedure for an employer that adopts a 403(b) plan, even though it is not eligible to do so -- i.e., stop all contributions to the plan, pay the VCP fee, and make distributions only when otherwise permitted to do so. Has anyone gone to the IRS to negotiate a VCP-like solution to such an issue--one that would protect the pretax status of the employees' contributions? What was the outcome?

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