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Hoping for some help. Client had a late deposit for the 12/23/2022 pay date. The total deferral was $1,400 It was discovered, deposited and the lost earning were calculated and deposited into the plan in Feb 2023. Since the payroll was 12/23/2022 , is it considered late for 2022? Do we need to put on the 2022 5500 and complete the 5330 for 2022? Could this be corrected with self-correction and no need to report? Your help is appreciated.

Plan Sponsor's Deferral and Loan Payments for 7 payroll periods were deposited late. Payroll periods start in March and end in May. This occurred when the Plan Sponsor changed HR management and went unnoticed until the plan's investment platform sent an alert regarding a late loan repayment issue. All 7 payroll periods were deposited immediately when this was realized, all were within 75 or fewer days of when they should have been deposited but for the oversight. The Recovery Date is June 13. Amounts involve about $5,800 in total deferral deposits (aggregate all payroll periods) and $100 in loan repayments (aggregate). This is a self directed plan and 20 participants are affected. This oversight was addressed immediately and steps/protocols were established to prevent this from happening in the future. This is a Prohibited Transaction but not an operational defect as the plan does not specify a deposit date for deferrals. Questions: Lost Earnings: it is my understanding the Employer may determine Lost Interest (from date deposits should have been made (usually 1 day after payroll date) to actual Recovery Date) based on the greater of the (i) DOL Calculator or (ii) the Plan's actual "Investment Experience" had the deposits been timely made*. *To determine the "Investment Experience" it is my understanding the Employer may use the highest performing investment offered within the Plan, for each of the affected payroll periods in lieu of determining each participant's Investment Experience for each of the periods, if doing it individually is more costly than the benefit itself. The measurement period is the date the deposit should have been made, i.e. the Loss Date, to the Recovery Date (date actually deposited). IS THIS CORRECT? Interest on Lost Earnings: are determined from the Recovery Date to the Final Payment Date (the date the Lost Earnings are actually deposited along with interest on the Lost Earnings). DOL Calculator determines this easily using the DOL rates. HOW WOULD YOU DETERMINE THE INTEREST ON THE PLAN'S "INVESTMENT EXPERIENCE" LOST EARNINGS (referring to the greater of (i) DOL or (ii) Plan in #1 above)? Select a reasonable interest rate, e.g. Prime +1%? I read a post that suggested If the Employer were to determine the "Lost Earnings" and the "Interest on Lost Earnings" correctly (as above) and opted not to submit VFCP, it should be acceptable (no action nec) if ever audited since the Employer made the correction using the greater of the DOL or Plan Experience determination. IS THIS CORRECT? If submitting VFCP the Employer can use the DOL Calculator and ignore the plan's Investment Experience - correct? Restoration of Profits: is this an amount equal to a reasonable rate of interest (e.g. prime + 1%?) accumulated on each PT (i.e. each payroll period), measured from the Loss Date to the Recovery Date? If this cumulative amount is greater than the Lost Earnings determined as described above, then this amount should be remitted to the Plan in lieu of the Lost Earnings as determined above (and the Interest to the Final Correction Date is likewise adjusted)? Form 5330: essentially the Employer must pay a 15% excise tax for 4975 PT, and it is equal to 15% of the Lost Earnings amount (or Restoration of Profits amount if greater)? If the 15% Excise Tax is less than $100, the Employer may opt to deposit it into the Plan and allocate it to the affected participants (as per plan provisions)? Notice Affected Participants: is not necessary if the 5330 excise tax is deposited into the Plan and allocated to the affected participants in lieu of submitting Form 5330 and paying the tax? Are there any further corrective steps necessary? Should the VFCP submission be completed in spite of the small amount involved? Again, I thought I read a post indicating not to submit if the cost to prepare the submission exceeds the correction necessary. But of course the Employer must be certain all is calculated correctly and the correction is the greater of the DOL calc amount or the plan experience... Thank you.

I'm not sure whether this issue is better placed in EPCRS 403(b) or Form 5500 because it applies to all. A client has a 403(b) plan that is now a large plan requiring an audit. The auditor uncovered several operational errors and a lack of adequate procedures to make sure the plan is compliant. The client has investigated the 3 prior plan years and has found similar errors. These are pretty typical errors: the employees may not have been made aware that they were eligible to defer upon hire, some employer contributions didn't start as soon as the participant became eligible for them, some late deferral deposits, contributions weren't always calculated using the correct compensation definition, some investment directions were not followed and contributions were invested in a default fund. The client will be correcting operational failures under EPCRS with a VCP application, with assistance of counsel. They expect to correct the late deposit of deferrals by calculating interest and depositing in participant accounts, without a VFCP application. But here's the more immediate issue. The 5500 is now overdue because the auditor will not issue a report. So a new late filing error has occurred and the penalty amount will continue to increase. The auditor wants all of the failures quantified, and won't proceed until the entire 30 year history of the plan has been investigated to uncover all errors. This appears to be unique to the first audit year because opening balances have to be verified. But when corrections are made, aren't they deposited and credited to the account in the current year? I have submitted many VCP applications that correct for multiple years (for large plans) and have never heard that the 5500 should be redone for prior years because the errors mean that the opening balances aren't correct. Is an auditor able to issue a qualified opinion in these circumstances - stating the types of errors that were found and indicating that the sponsor is working with counsel to make appropriate corrections? May be a separate question whether the DOL/IRS would accept this. There has to be a way to move forward and get the 5500 in (even if it needs to be corrected later) before the investigation is completed for prior years, the VCP application filed and a compliance statement received.

Hello all! We have a client that would like to self-correct their untimely participant contribution and loan repayment remittances in lieu of filing under VFCP. The client is well aware of the potential liability they may face in the event of a plan audit should they choose to forego the opportunity of receiving a "No Action" letter from the DOL via acceptance of a VFCP. As I read in EPCRS, you can use an actual earnings method, or the highest performing fund method to determine the lost earnings on the late remittances. I am probably over analyzing the situation, but would we use the actual performance rates for funds i (i.e. returns published in Morningstar) to determine the highest performing fund, or somehow determine the fund performance within the plan? Depending on fees, withdrawals, contributions, etc., the "Plan" fund returns may be greatly skewed in comparison to actual mutual fund performance for the fund as reported online on Morningstar, Yahoo! Finance, etc. Additionally, can you pro-rate the highest performing fund percentage? For instance, if the start date of the untimely remittances was 1/21/2013, but I get the highest performing fund for 1/1/2013 - 12/31/2013, can I assume that the contributions were invested for the year from 1/21/2013 - 12/31/2013 at a pro-rated share of the highest performing fund (i.e. contribution was invested at rate compounded over 1/21/2013 - 12/31/2013)? Any help is greatly appreciated. I am tired of debating with myself on this issue Thanks! Wickedp1

I need a bit of help with completing the Form 5330 regarding late deferrals. We have a plan we've taken over a plan where the auditors have determined that several payrolls (going back to 2008 ) were late. The Form 5330 was not done for the prior years so we are trying to catchup. I have calculated the missing earnings on the applicable payrolls however I need a bit of help correctly reporting this information on the Form 5330. Here are some of the applicable payrolls. The DOL VFCP calculator was used to calculate the lost earnings and interest. Loss Date Recovery Date Final Payment Date Amount Due 10/28/2008 1/29/2009 9/30/2011 346.26 1/6/2010 1/21/2010 9/30/2011 40.20 2/24/2011 3/3/2011 9/23/2012 23.79 My 1st thought is that I will need to do a Form 5330 for each tax year (2008, 2009, 2010, 2011, 2012) and report the amount involved each tax year until it is corrected. Meaning that the 10/28/2008 loss of 346.26 would be reported on the 2008, 2009, 2010, and 2011 tax form? If this is the case then they would pay the 15% penalty for each year until the loss is corrected? Or do I report is once, and then report on Form 5330 Schedule C #5 in the appropriate tax year when it is corrected? I hope this was clear. Let me know if I need to explain further.