Pension Plan gone awry

[Burke]

Wow. That is amazing. But IRS is only concerned with getting its just due of tax, and in this case perhaps it did not matter? A complaint under ERISA might not stand scrutiny, however.

[joanmcq]

Audited by the IRS or audited financial statements? I read as audited financial statements, and that still makes me go "whoa". But if the amounts aren't 'material', they may have missed scrutiny. Or the auditors have no clue about retirement plans.

[Super Mom]

I know practically nothing about all this, but have found that a person can "recharacterize" the Roth to a traditional, because they were paying into a Roth thinking it was non-taxable all of 2012 and didn't want income for that on W-2 so recharacterized to Tradtional. Hope this helps!

[RJM]

EPCRS filing?

To fix this, it may be worthwhile starting an EPCRS filing, which is an Employee Plans Compliance Resolution filing. It is a long onerous process, but it may be the only way to make all that has happened in the past OK. It would also involve drafting a plan document, preparing 5500's for prior years, and characterizing the Plan Assets as individually managed profit sharing assets. The asset custodians would need to get involved and copy the company with statements going back to inception of the accounts, and properly restrict activity in these accounts. All the cash flows for all prior periods where this Plan was in operation would need to be recreated and documented. Then, after all the work is done, you plead for mercy and it may be possible to escape with only small fees from the IRS.

If the company went through an IRS audit with their OK, this fact would help in the EPCRS filing, but not excuse the deficiencies. The beauty of an EPCRS filing is that you potentially avoid the horrible penalties associated with an audit and a Plan disqualification. It is also very disruptive to the employees, requiring lots of amended returns. I filed one of these 10 years ago with excellent results. The client and I started it out by working with an Employee Benefits attorney for initial guidance, but we did all the work so the attorney fees were low. In the end the IRS and DOL both signed off and the Plan was on sound footing going forward.