Not if, But When

To err is human, to forgive divine. And to correct is wise — as industry experts outlined in an Oct. 24 session of the 2022 ASPPA Annual Conference. 

Heather Bader, Partner at Faegre Drinker Biddle & Reath LLP, and Adam Pozek, Partner at DWC-The 401(k) Experts, discussed doing just that in the session they led, “EPCRS! You Made a Mistake — What’s Next?” 

“It’s not a question of if something is going to go wrong, but when,” said Pozek of the effort to comply with reporting requirements. 

Self-Correction 

“Plan sponsors are finding ways other than the VCP [Voluntary Correction Program] to correct errors,” remarked Bader. 

The general rule for late amenders and non-amenders, they said, is that if a defined benefit restatement was not adopted by July 31, 2020, the plan: 

• becomes an individually designed plan for the period between July 31, 2020, and the date the restatement is actually adopted; and 
• is no longer a prior adopter of a pre-approved plan. 

Under guidance the IRS issued in 2022, self-correction is available if the plan satisfies: 

• all requirements for the self-correction program, including timing requirements; and 
• the requirement for a favorable prior letter (including an opinion or advisory letter).

Factors Bader and Pozek suggest that one consider in self-correction include: 

• other failures in the same period;
• percentage of plan assets and contributions involved;
• number of years it occurred;
• participants affected relative to the total number in the plan;
• participants affected relative to how many could have been affected; 
• whether correction was made soon after discovery; and 
• the reason for the failure. 

“It’s always gonna be facts and circumstances,” Pozek added. 

Pre-Approved Documents

Even pre-approved documents are not necessarily a panacea. Pozek cautioned that not all of them are written the same way. If a plan with pre-approved documents assumes another plan that also has pre-approved documents, the acquiring plan should examine those documents and check their wording, he said. 

But That’s Not All 

And it’s not enough to just address an error for which one may need to avail oneself of self-correction procedures or the VCP, Bader warned attendees. What is often missed, she said, is “this little thing that you’re not supposed to do it again.” She said that she reminds client of this. 

Pozek concurred, noting that his firm has seen some clients say that, if it is relatively easy to fix an error, they aren’t going to worry about it in the first place. He added that sometimes there are people who intentionally make an error, perhaps because of deadline pressure, because the fix is so easy. 

Bader said she stresses that one really should try to prevent the error from happening in the first place.