Pilot error - How to fix plan errors

Pilot error:  the diagnosis is bad news.  Of course I’m sure the pilot didn’t intend to make a mistake, but sometimes mistakes happen.

Mistakes happen with retirement plans too.  Luckily, with several options available to fix plan errors, the result is not nearly as catastrophic as with pilot error!

Plan errors don't have to be as costly as pilot error


The Internal Revenue Service (IRS) and Department of Labor (DOL) each have correction programs designed to help employers fix problems with their qualified retirement plan.  Some of the correction programs require a formal filing and sanction (filing fee) to correct plan errors.  It is really a bargain to correct under these programs the government has established as opposed to the “wait and hope” strategy.  If your plan errors are discovered in audit, the sanctions increase dramatically!


Some plan errors can be self-corrected.  The problems that can be self-corrected must have occurred within the past two years, and must have been an isolated incident as opposed to an ongoing situation.  The Self-Correction procedure requires formal steps to be taken to document the correction appropriately. 


If you failed to file your plan’s Form 5500 in time, you can submit it under the Delinquent Filer Voluntary Compliance (DFVC) program.  You can file for one or more years at a time.  The sanction for small plans (under 100 employees) is $750 for the first plan year and $750 for any number of additional years, so if you have four filings to submit your sanction would be capped at $1,500.  For large plans, the sanction is $2,000 for the first year and capped at $4,000 for multiple years.  The fee cap applies on a per-submission basis.


Employee contributions and loan payments should be remitted to the plan as soon as administratively feasible.  For small plans, the safe harbor for timely deposits is seven business days after payroll.  Depending on facts and circumstances, this timing may be less for large plans.

If any deposits are remitted to the plan later than these general guidelines, the employer must make the deposit, make up lost interest (as calculated on a DOL calculator), and pay an excise tax.  The employer can remit the excise tax to the IRS directly or file through the DOL Delinquent Filer Voluntary Fiduciary Correction Program (VFCP).


Bigger plan errors may be able to be corrected under the IRS’s Employee Plans Voluntary Compliance Resolution System (EPCRS).  EPCRS filings typically require professional assistance and also carry sanctions based on the plan size.


Your plan document should mirror how your plan is being administered.  If you find the document doesn’t match what you want for your plan or how you’ve been administering the plan, you can request the option of retroactively amending your plan from the IRS through their Voluntary Compliance Program (VCP).  Like EPCRS, VCP typically requires professional assistance and carries a sanction based on the size of your plan. 


Whom can you count on to find potential plan errors?  Building good internal policies and procedures will help keep the plan running smoothly.  The people or department at the company sponsoring the plan may recognize something is awry.  As Third Party Administrators (TPA) for retirement plans, we run a compliance check each year.  We help our clients meet their compliance fiduciary responsibility, and we can help you fix any plan errors if necessary.

Photo by hisks