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Is there a paper submission to DOL when using VFCP?


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I was talking with our client's representative at a well-known investment company's retirement department. They will be helping our client make a correction to a couple of errors that occurred last year relating to employee deferrals. (The client's spreadsheet was off a line, so a deferral from one participant went into the account of the next participant on the spreadsheet.) We talked about VFCP and I asked if they would prepare the submission to the DOL. She responded that this is a voluntary program, the correction is made and documented, but nothing is submitted. What? I guess it makes sense now why I felt like her side of the conversation meandered back and forth between the EPCRS Self-correction program and the DOL's VFCP. I was having a hard time keeping up, even though I've been doing this stuff for a long time. Even her e-mail communication to the client was lengthy -- and very disjointed, discussing both EPCRS and VFCP interchangeably, which was why I wanted to have a verbal conversation with her. Stuff like the withdrawal part of the transaction comes under VFCP, but the deposit side comes under EPCRS (or visa-versa -- my head was spinning, so I'm not positive which way she said it). So, now I'm starting to second guess myself. We do need to submit an application to the DOL when we use VFCP, right? And, when she talks about the deposits and withdrawals to make the correction coming under different programs? Holy cow. Where have I been? If you tell me she's right, I'm putting in my papers because clearly, I shouldn't be doing this any more.

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I can tell you that. Yes there is a formal submission that is supposed to go the DOL. If you go to the DOL website you can download both the application and the checklist. By the way ....the checklist is supposed to be signed and sent in with the application. And the checklist gives some help in deciding if a Form 5330 needs to be filed with the IRS.

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(The client's spreadsheet was off a line, so a deferral from one participant went into the account of the next participant on the spreadsheet.)

If all the money is in the trust and nothing is late, why are you bothering with VFCP?

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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How much money is at stake? If you have corrected everything according to the manner described under VFCP, other than actually file the VFCP application, then you have generally satisfied the IRS regarding the issue (seems odd, right?), and the DOL is the only agency not yet fully satisfied. If the DOL investigates, they could require you to use a higher assumed rate of return than the rate you used for the correction, but that's usually about the extent of it. So if only a few pennies of missed earnings are involved between the rate you used and the potential rate the DOL could later force you to use, is it really worth the filing? Maybe, maybe not.

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To me, VFCP is for late deferrals (and loan payments) to the TRUST, not individual accounts.

After that, you are really just correcting the accounts in the manner of EPCRS--get the plan situated as if the error didn't happen.

For the earnings, how are you determining that? In an individual account plan, it may be easier to determine the individual rate of return for everyone--have the investment company run a statement for everyone.

How long has this been going on? If it's less than two years, then, even if it's a significant error, you can self-correct, I believe.

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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It happened to two different participants on two different dates in 2012, so I agree that self-correcting under EPCRS satisfies the IRS requirement. But I hesitate to take a short cut and not do the DOL filing, even though the earnings, no matter how they are calculated, will be a small amount. I can leave it up to the client, I suppose. I very much appreciate your thoughts. There's no one in my office to bounce things off of, so it helps a lot to be able to do that here.

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I don't think I'd go through the time and expense of VFCP for this.

Make the correction, document everything thoroughly. Make sure you and your client have a copy and move on to bigger and better things...

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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A little late on this and it has been largely resolved, but just for the record, the IRS website has a pretty good explanation. It confirms what's already been noted, that using the DOL calculator without the VFCP submission really doesn't cut it. That said, I agree with others that the practical thing to do is to do just that (use the calculator and move on without filing).

Ed Snyder

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