A local governmental defined benefit plan has a discrepancy between the plan definition of part-timers for eligibility purposes and its personnel rules. It has therefore been excluding certain part-timers that should have been eligible under the plan (for about ten years now!). What is the appropriate correction method?

Submit under VCP, RP 2006-27, as an operational error and credit the particpants with the benefit.

I know of a similar situation. In short, a local government plan failed to comply with the a 401(k) plan document, thereafter not allowing eligible part-time employees to participate. I agree that this is an operational error and must be fixed. But I am unconvinced that the error must be retroactively credited or that VCP is the appropriate correction method for government employers, don't different rules apply to government employers? Any help would be appreciated.

Different rules do apply to government employers. However, the requirement to follow the terms of the written plan document is still required in order to keep the plan's tax-favored treatment.

Absolutely. But other than correcting the problem prospectively, would a government plan be required to retroactively credit participants (as in "regular" Section 401(k) plans). What rules would apply to this process?

I think Everett has a decent option. But, perhaps under Rev Proc. 2006-27, you could submit a VCP application proposing the fix you'd like to make and see if the IRS will go for it. If not, negotiate as best you can to get close to what you want.

If that fails, the IRS will allow you to withdraw the VCP filing. If such application gets withdrawn with no resolution, would the IRS turn over the case to their plan examiners for audit?

Well, according to IRS officials at a conference about a year ago, they want to keep the integrity of the EPCRS program in tact. The only time they would ever turn over a closed unresolved VCP case to their auditors would be for an egregious case. They also stated that (as of the date of that conference) they only had a few (less than a dozen?) cases that were closed as unresolved, and none of those were turned over to their auditors.

Whether sanctions will be imposed on govt entities for violation of q plan rules is a question of clout since there is no tax sanction that can be imposed on the employer. Large govt entities are not punished for violations of Q plan rules. A few years ago the IRS audited the NYC Q retirement plans and determined that assets were being withdrawn to balance the budget. The penalty imposed by the IRS was an agreement by NYC not to do it again.

Do you have a case/ruling number/name on that? I would appreciate it. Thanks!

No cite. It was reported in the NY Times.

Ah, the nicer, friendly IRS. If private plans could receive just one-tenth of such generosity that these government plans are granted.