RatherBeGolfing

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.

Since it is not late deferral, what eligible VFCP transaction would you submit it under? Looking into WHY the RK did what it did, and if it will continue to do it that way (and if that is a potential recurring problem) is probably the more pressing issue.

Absolutely. From your facts, the assets were segregated from the ER assets timely, so there are no late deferrals. It also sounds like a short administrative delay before the assets made it to the participant accounts. It is a matter of a few days correct? I don't see this as a fiduciary breach either.

Possible consequence could be losing the ability to take a future loan assuming the defaulted loan doesnt max out the limits. But other than that, no.

They know their document very well. That election is an hours requirement, not elapsed time. There is another election that specifies months and elapsed time, in which case the ee would only need 1 hour in the first and last month to count all the months. The failsafe for your election is 1000 hours. An ee who worked more than 1000 hours in a 12 month computation period but failed to work at least 1 hour per month for 6 consecutive months would still satisfy eligibility.

Using safe harbor definition? No. Costs related to the purchase of a primary residence and costs to prevent eviction/foreclosure are different hardships. For the latter, you are 100% correct to require that the participant prove foreclosure/eviction.

Let's start with the obvious, what does the QDRO say?

Good point. I do think the two go hand in hand though. Can you make a reasonable conclusion (as it pertains to our QDRO discussion) without satisfying ERISAs fiduciary standards? I can't come up with an example where when one is met and the other is not.

Would you say that the fiduciary standard is higher than @QDROphile's "reasonable conclusion" standard?

With very few exceptions, hardcopy.

You can make it one step shorter by not clicking on your name and just going to the top of the page and click the drop down with your name, etc. Not sure its any easier or faster though

Yea I dont see a practical reason either, but I have seen people do some weird things for weird reasons.

I would also decline. While we rarely have to take measures to enforce our SA, I would have some doubts about a client who does not want to sign one at all.

Maybe the benefitslinker IS the manager ?

I agree

Sure, if we change the facts from post death QDRO being the issue (its not) to a post-distribution QDRO, the issue is moot. Ex-spouse would have standing if the plan ignored a valid and timely QDRO, like a QDRO filed before assets were distributed. Ex-spouse would absolutely have an equitable claim against surviving spouse for assets that the court already ruled belongs to ex-spouse.

Without a QDRO? They have none, unless they have one of those funky QDRO procedures that kicks in when they are put on notice, but Im pretty sure OP said they require the actual QDRO. My point was simply that the death of the participant does not invalidate a subsequent QDRO, which had previously been called into question in this thread.