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Common Plan Failures and Corrections Q&A
Last Updated: April 25, 2012
After our recent Educational Series webinar Everyone Makes Mistakes: A Review of Common Plan Failures and Corrections, Chase Tweel, J.D., LL.M., a Pension Consultants ERISA Analyst responded to the questions the audience asked. Here’s what he had to say.
Question: At the end of the presentation, when you were describing common types of plan mistakes, you distinguished between mistakes that affect participant’s benefits from those that do not. Are there harsher consequences for mistakes that affect participant’s benefits?
Chase: Not technically, but mistakes that affect participant’s benefits are more likely to be determined “significant” and significance is a key factor in determining whether or not a VCP filing will be necessary. Also, the remedial steps for this type of failure, even if no filing is needed, may involve the Employer making participants whole, which could involve actually cutting a check out of corporate funds.
Question: If we suspect our plan is experiencing a failure that could result in disqualification, should we notify participants?
Chase: Not necessarily—it is best to notify your consultant and ERISA counsel when you suspect a plan defect has occurred, and they will prescribe the best course of remedial action which at some point may involve notifying affected participants. Simply put, do not do anything without first consulting an expert, ideally your ERISA counsel.
Question: If a VCP filing is needed, how much does this process cost, excluding the cost of whatever the ultimate correction might require?
Chase: That varies depending on both the size of the plan (on an asset basis) and the type of failure involved. Revenue Procedure 2008-50 provides a detailed fee schedule. The cost may range from several hundred dollars to many thousands of dollars. Note also that most agree that the cost of a VCP filing should be categorized as a settlor expense, not a plan expense, and should not be paid for out of plan assets.
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