In our last Correction of the Quarter, we looked at related companies setting up different types of plans for their respective employees and noted that this sort of structure isn’t “necessarily” a problem when it comes to 401(k) plans. Well, as usual, the devil’s in the details, so we thought it was worth diving into what happens when this is a problem.
Topic Archive: VCP
Stop us if you’ve heard this one before – a SEP, a SIMPLE, and a 401(k) walk into a bar…unfortunately, there’s not a great punch line at the end of this one. Instead of some good laughs, this situation is a recipe for some issues in need of attention. While it might be unusual for a single company to establish one of each, it is not nearly as far-fetched to discover that related companies may have setup separate types of plans for their respective employees, one with a SEP or SIMPLE and another with a 401(k) plan. This isn’t necessarily a problem with respect to the 401(k) plan, but the SEP and SIMPLE rules restrict how those types of plans can co-exist with others.
We’ve been through a few Corrections of the Quarter together now, and we appreciate you being along for the ride. We feel this is pretty good stuff but, at the heart of it all, we’re pension geeks (no point in hiding it). And while the rules and regulations get us going, we have a geeky passion for the opportunity to find creative solutions.
While not quite as ominous as a battle with the Night King, dealing with participant loans in retirement plans can be a daunting challenge for plan sponsors. Because of Congress’ concerns about protecting plan assets from improper use by participants and plan sponsors alike, the loan rules are strict and unforgiving.
The IRS did its part to make Friday, April 19th a really good Friday for those who sponsor qualified retirement plans. After not making many friends when it jacked up the user fees for the Voluntary Correction Program (VCP) a year or so ago, the IRS has responded to industry requests (that DWC representatives helped draft) by now allowing plan sponsors to self-correct a number of more common missteps without the need to submit anything to the IRS at all.
With all the responsibilities that come with being a plan sponsor, not to mention a business owner, your plan’s forfeiture account probably doesn’t make it anywhere near the top of the priority list. More than likely, forfeitures are allocated to the account automatically by your plan’s recordkeeper following a participant distribution. Then, your plan consultant provides you an annual update of the value of the account when delivering your compliance testing, plan reconciliations, and Form 5500 after year-end. The forfeiture account is just sitting pretty with minimal earnings, readily available for a rainy day. No problem, right?
People in the retirement plan business sure do like their acronyms. All these letters get thrown around, and I do not know what half of them mean.