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5330 related for lost earnings on late 401k deferral deposit


Jakyasar
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Hi

My first one ever. Need input from 401k gurus out there.

Scenario 1:

One deposit made 3 months late. Did the VCFP calculations. They made the deposit for lost earnings today. Correction under 4975(a).

Preparing 5330. Completing Sch C

Item 1 is discrete, correct?

Completed item 2-a-1-i - date of transaction is when they deposited the missing deferrals, correct?

Item 3 is fine

Item 4, checked yes

Do I need to complete item 5? It is the filer/sponsor listed on page 1, items A & D

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Scenario 2:

This time I have 20 late deposits, 4 participants, 5 different deposit dates. They will write one check i.e. all corrective amounts will be done in one day.

I think put in 5 "transaction dates" and put in the appropriate lost earnings for each transaction date, correct?

Again, do i need to complete item 5? If yes, do I need to put in 5 times?

Did I miss anything else or not asking correctly?

Thank you for helping out.

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I've often listed "same for all" on Page 5 if they corrected everything at once.  And yes, you list the sponsor there, specifically in the role as the disqualified person.

Item 1 is NOT discrete, because it's a loan between the plan and the plan sponsor.

The date of the transaction is the date it became a prohibited transaction, so either the payroll date or some day almost immediately thereafter such as when they SHOULD have made the payroll deposit but didn't.

So you might have various dates for each of the prohibited transactions but the same correction date (scenario 2)

 

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This was not the question you asked, but it bears pointing out that the earnings calculated by the VFCP calculator are only acceptable if you actually correct the prohibited transaction under VFCP. If you are merely self-correcting then you must calculate earnings as provided under EPCRS, which usually means the actual rate of return.

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Ah, big difference.

A follow up question as I am more a practical approach person.

First year of the plan is 2020.

Let's assume $20,000 was due on 12/31/2020 as the deferrals and not deposited till 5/31/2021. This was the only deferral for 2020 so no returns on investment during 2020.

If I used the VFCP calculator, the lost interest is $500 (making up), payable by 7/15/2021.

So, for 2020, what is the sponsor's responsibility for lost of interest and any penalties, in dollars?

Thank you

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In the case where actual returns are less than the returns calculated by the VFCP calculator (or negative), I usually use the greater of the two.

(Is the plan trustee-directed or participant-directed? If trustee-directed, do they have an IPS? Does the IPS say they will invest 100% in money markets? That doesn't pass the sniff test for prudence, or diversification, in my opinion.)

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The plan is all hce's and family members. All assets in a pooled account.

Really appreciate your input. I actually did the higher of the 2 for loss earnings.

Thank you

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And where actual returns are in an array for various mutual funds, I recommend picking the highest one. That has worked in the past. BTW, this makes a big difference in early 2020 versus now--for several of my clients. In one case, it was their precious metals fund that was up the most during the pandemic ! A good recordkeeper/investment manager can provide you with the return for the proper number of days for each fund.

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