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Fixing the Inevitable

Practice Management

What do you do if things go wrong? A discussion at an Oct. 25 session of the 2022 ASPPA Annual Conference offered tips on what can be done if the seemingly inevitable takes place. 

Eric Brandon, a pension actuary with Guardian Life Insurance Co., and David Kupstas, Chief Actuary with ACG Wealth Management, discussed programs and steps that can be taken if a mistake is made in pension administration. 

Plan Disqualification

“The horror story to end all horror stories” was how Kupstas described plan disqualification — the potential result of some errors in plan administration. He offered some comfort in his observation that “you hear about it, but you don’t see it a lot.”

So what are the consequences if a plan is disqualified? The IRS says the following: 

  • Consequence 1: General Rule — employees include contributions in gross income
  • Consequence 2: Employer deductions are limited
  • Consequence 3: Plan trust owes income taxes on the trust earnings
  • Consequence 4: Rollovers are disallowed
  • Consequence 5: Contributions subject to Social Security, Medicare and federal unemployment taxes

One still will want to avoid that circumstance, rare or not. But how does one go about that?

Addressing Errors

Kupstas discussed options federal agencies make available for addressing errors, which will help a plan to avoid disqualifcation. 

IRS. The IRS Employee Plans Compliance Resolution System is one option. EPCRS, he noted, consists of three programs; 

  • Self-Correction Program (SCP);
  • Voluntary Compliance Program (VCP); and 
  • Audit CAP. 

The IRS also provides a late filer penalty relief program, and an excise tax program, through which one pays through the Form 5330. 

DOL. The Department of Labor has two main programs:

  • Voluntary Fiduciary Correction Program (VFCP), which he said is largely used when there are late 401(k) deferrals and participant loan repayments; and 
  • Delinquent Filer Voluntary Compliance (DFVC) program, which Kupstas said is largely used when there is a late submission of a Form 5500 or 5500-SF. 

An Ounce of Prevention 

Rather than simply reacting to an error that has been made, one also can take positive steps to head off the possibility in the first place. 

Brandon and Kupstas highlighted the importance of good communication, which Kupstas said was “key.” They offered the following tips: 

  • Consider combining written and oral communication. 
  • Clearly state the goal and relevance up front. 
  • Communicate any deadlines. 
  • Provide options. 
  • Don’t delay unduly, but come prepared.
  • Set the right tone: use language the audience will understand, and don’t be inflammatory.
  • Provide follow-up documentation. 

“When you do communicate,” said Kupstas, “don’t beat about the bush. Say what’s needed up front.”

The Bottom Line

Brandon and Kupstas offered general principles to remember in addressing mistakes with pension administration: 

  • Get all the facts.
  • Don’t make the client’s problems your problems. 
  • Know the limitations of your expertise. 
  • Don’t hesitate to recommend an ERISA attorney.