RatherBeGolfing

Yea I agree. Most auditors I work with would be happy to just make a small note of it and move on (assuming the error was fixed and new controls in place). I have seen much bigger issues barely get a footnote...

That wouldn't surprise me. I posed the original question on one of the linkedin message boards and you squeezed it into the IRS Q&A as the very last question

Which is part of the correction. Your argument is that you don't want to fully correct because it is inconvenient.

This question was asked at the 2013 ASPPA Annual conference. The IRS panel agreed with ASPPAs proposed answer that:

It started as a Philly project and then spread to other regions. The wording of the letters vary a bit, but the common thread is that they want you to correct the fiduciary breach, not just correct the earnings.The Chicago letter is a little more aggressive. Rather than please use the VFCP to correct, this letter says correct or else. But in the end, can you really complain about the DOL telling you to correct an error you haven't corrected?

We still do it this way.

I agree. But we are required to disclose lots of things that really don't make sense to participants. Have you ever seen a participant read the comparative chart for investment performance? It might as well be in Chinese and goes straight in the trash can at most meetings, but somehow it is supposed to help them make informed investment choices... They already have the most of notices prepared, all you need to do is add your fees before distributing to plan sponsor/participants. Depending on your fee structure, it could be something fairly simple like: A base of $X plus $Y per participant, deducted from participant accounts based on the relative size of each account (pro rata) unless the Plan Sponsor elects, at its own discretion, to pay for some or all of the Plan's administrative service expenses through non-Plan assets.

If you want to comply with 404a-5, absolutely. This should be disclosed in your annual notice and any changes should be disclosed at least 30 days before the fee is incurred. You shoul'd also disclose all the participant level fees that may be charged if a participant utilizes a certain option like distributions, loans, etc. Are your plans with platform RKs like JH, Principal, etc? If so, it should be fairly easy to cover. Most of mine pay outside of the plan as well, but if it can be paid from the plan, you have to disclose that and what the fee is. Yes, it has been required since 2012. There are still a lot of bad / vague disclosures out there, but the DOL is looking at both 404a-5 and 408b-2 disclosures, and it should be pretty easy to disclose on the TPA level.

non-resident alien and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States.

There is a good section in the EOB on this. Ch 4 - Section VI - Part B - 5 1.411(a)-4(b)(6) requires that the benefit is payable. Since we are talking about missing participants, payable means without consent. It follows that forfeiture under 1.411(a)-4(b)(6) should be limited to the notice and consent exceptions under 1.411(a)-(11). It is also worth pointing out that the DOL does NOT allow for forfeiture of vested benefits and considers it a PT. Until we get further guidance from the DOL, I would avoid forfeiture as a solution to missing participant funds.

I'm not convinced OP is asking for a lumpsum from the plan. Those not in our industry often throw around terms that have a very precise meaning to us but mean something different to them. OP could be asking if they could get an order that parties have agreed on a payment that does not involve the plan, overriding the first DRO. In that case, the @QDROphile is correct. If the OP is still talking about a payment from the plan, then you are correct, they obviously need a QDRO to pay the AP from the plan.

The DOL is aware that many have inflation guards so it really doesn't look that weird. I do 10% rounded up. $800,555 in assets become $80,056 in order to avoid my admin software warning that the bond is not 10% If I leave it at $80,055.

Yea it is always good to give them some heads up. Its easier to do that than deal with un-cashed checks and missing participants.

No special tax notice needed for distributions under $200 Treas. Reg. §1.401(a)(31)-1, Q&A-11.

Yea there are a lot of disclosures out there that do not come close to meeting the requirements. At this point, there really is no excuse for not making a good faith effort to disclose even the most complicated formula. For TPA fees, it is usually very straight forward though

Your annual 404a-5 disclosure has to disclose administrative service fees that may be charged against participant accounts (such as record keeping fees and TPA fees). It can be a dollar amount or a formula, but must explain what the fee is, it is not enough to say that you might charge a fee. There other requirements such as the comparative chart and investment instructions but that is another discussion. Your quarterly 404a-5 disclosure has to specify the dollar amount that was charged and what it was charged for.

Napa-Net Article ARA comments Nevin E. Adams, JD 6/8/18 A regional office of the Employee Benefit Security Administration has been threatening enforcement actions against plan sponsors who correct the late deposit of participant contributions or loan repayments without making a formal submission under the DOL’s Voluntary Fiduciary Correction Program (VFCP). The EBSA letter, signed by Chris Davis, Associate Regional Director of the agency’s Chicago Regional Office, threatens “alternative enforcement measures” if the plan sponsor does not file a VFCP application within 60 days of receiving the letter. The letter is apparently being sent to plan sponsors who, on Form 5500, reported the late deposit of participant contributions and/or loan repayments and correction outside of VFCP. In response, the American Retirement Association (ARA) has filed formal comments with Mable Capolongo, Director of EBSA’s Office of Enforcement, objecting to the threatening language in the letter. Noting that, “In effect, the letter is telling plan sponsors the DOL may open a full blown investigation unless a VFCP application is filed right away,” the ARA letter points out that the “inappropriate” threats are “clearly intended to scare plan sponsors into participating in what is supposed to be a voluntary program,” and “contradictory to the DOL’s own longstanding guidance with regard to VFCP.” The ARA notes that the language “flies in the face of the President’s efforts to reduce regulatory burdens and should cease immediately.” Commenting that, “Plan sponsors should not be threatened with the heavy hand of a government investigation simply because they choose not to use a voluntary government program,” the ARA letter requests that the DOL immediately cease threatening that “alternative enforcement measures” may be taken against plan sponsors who self-correct late deposit violations outside of VFCP, and recommends that to reduce regulatory burdens, the DOL add a self-correction component to VFCP as soon as possible. The latter “ask” refers to numerous comment letters from the ARA recommending the addition of a self-correction component to VFCP. “We have regularly brought this subject up in meetings with the DOL and we are disappointed nothing has moved forward over the last nine years,” the ARA reminds, noting that adding a self-correction component is directly in line with the President’s directive to reduce regulatory costs and burdens.

I send mine certified/return receipt with a cover letter listing the plan name, EIN, and plan number. The IRS always returns the cover letter but I use it to record when each 5558 was mailed. Whenever the IRS looses a 5558 and sends a love letter to the client claiming there was no extension, I just respond with the cover letter and proof of mailing/receipt and they just adjust their records.

You are trying to take advantage of the class exemption, which lets you allocate the excise tax to the participants rather than pay the IRS under certain circumstances. vfcp-class-exemption-faqs.pdf The class exemption is limited, so its possible that the SF EBSA office has determined that you don't qualify for the class exemption. You can only take advantage of the class exemption for one transaction once every three years. Have you already used the exemption in the last three years? Does your application contain more than one transaction? Either of these could mean that you are not eligible, in which case the EBSA is correct, and you need to file the 5330 and pay the tax. Could that be your issue here?

ESOP guy is correct.

You correct by issuing the 1099-R. No, its not ok to just let it go.

I am not criticizing your business model, but I am genuinely curious. How do you justify a distribution fee of $125 when the participant in fact gets no distribution. Even if the balance was large enough for the participant to get something, let's say an account balance of $199. At that balance you don't have to give them a rollover option or withhold, you just cash them out and you are done.

Good question...

I agree, de minimus is not a valid reason for forfeiture. The IRS allows for forfeiture with reinstatement for missing participants (Treas. Reg. 1.411(a)-4(b)(6)) The DOL does not expressly allow for forfeiture with reinstatement for missing participants, and may consider it a prohibited transaction.

In this context, you could probably include the "delayed" deferrals in your correction of late deferrals since you are already making corrections. This doesn't sit right with me. It may be practical for the RK, but not for the most plans and participants. A short delay from the ER could cause a long delay before it gets to the participant because of timing with the RKs "practical" procedures.