This case study explores a novel voluntary correction strategy that resolved multi-year compliance errors for a regional airline, settling for $53,700 and averting over $10 million in potential IRS and DOL penalties.
Averting $10 Million in Retirement Plan Fines
Client: Regional Airline
Regional Airline, a U.S.-based carrier, discovered multi-year compliance errors in its retirement plan, exposing it to over $10 million in IRS and DOL penalties. Issues included failure to adopt initial plan documents, untimely amendments for legislative changes (e.g., USERRA, SBJPA, TRA, RRA, and CRTRA), failing the Average Deferral Percentage (ADP) test for 2019-2020, and improper employee exclusions favoring highly compensated individuals. Hall Benefits Law (HBL) devised a novel correction strategy outside the standard Employee Plans Compliance Resolution System (EPCRS), leading to a Voluntary Closing Agreement Program settlement of $53,700—the first of its kind—preserving the plan’s tax status and avoiding massive fines.
THE CHALLENGE
The retirement plan’s operational failures risked disqualification, triggering excise taxes, penalties, and loss of tax advantages for participants. With discrimination issues benefiting highly compensated employees, standard EPCRS corrections were inadequate, potentially leading to $10 million in sanctions and forcing corrective distributions without a clear path to compliance.
THE TURNING POINT
Upon identifying the errors, Regional Airline needed innovative ERISA expertise to craft a bespoke resolution that addressed all issues while minimizing costs. Traditional methods fell short, prompting engagement of HBL to negotiate directly with the IRS for a tailored settlement.
THE SOLUTION
HBL partner Anne Tyler Hall reviewed the plan and proposed a custom correction program generating immediate IRS tax revenue through distributions to highly compensated employees and related taxes. This approach resolved compliance and discrimination flaws. After multiple IRS meetings and negotiations, HBL secured agreement on sanctions, distributions, and taxes, while establishing a compliant new plan.
Our Results
$10MM Avoidance
Mitigated over $10 million in IRS and DOL penalties through a $53,700 settlement, including $10,000 in sanctions and $43,700 in taxes.
Tax Status Preserved
Maintained the plan's tax-advantaged status for non-highly compensated participants, avoiding disqualification.
First-of-Its-Kind Settlement
Pioneered a Voluntary Closing Agreement outside EPCRS, setting a precedent for complex retirement plan corrections.
Clean Plan Implementation
Enabled Regional Airline to institute a fully compliant retirement plan moving forward, completed in Summer 2024.
WHY IT MATTERS
Retirement plan errors can accumulate into existential threats for employers, but creative, outside-the-box strategies can salvage them. This case exemplifies how specialized negotiation with regulators can resolve entrenched compliance issues, protect employee benefits, and prevent financial ruin, emphasizing proactive audits and expert intervention in ERISA matters.
ABOUT HBL
Hall Benefits Law (HBL) is a boutique ERISA and employee benefits law firm helping employers design and defend retirement and health plans. With offices nationwide, HBL advises on M&A benefits, ESOPs, executive compensation, and compliance, and drives savings and transparency through TPA and PBM negotiations. Firm clients have realized over $400MM+ in penalty abatements and multimillion-dollar annual plan savings.