Employee deferrals not contributed to plan.

[katieinny]

An ER recently discovered that a couple of pay periods worth of elective deferrals were not deposited to the plan for the 2001 Plan Year. Of course, he's willing to make the contributions and must calculate earnings (or losses) on those contributions. He'll need to come up with the earnings out-of-pocket.

Is it possible that this could be dealt with via self-correction, or is it definately a VCP issue?

[austin3515]

It's actually a DOL issue. Take a look at the DOL's Voluntary Fiduciary Correction Program to see how this should be corrected. Also, if you do a search for the "FAQ's on the VFCP" the DOL's FAQ's should pop up for you which is an excellent summary of the program.

[katieinny]

Thank you for your information. I have printed off some information on the VFCP. Hopefully, the fact that the EE contributions are a couple of years late instead of a couple of weeks late won't change anything.

So, in this case, the IRS doesn't need to be brought into this at all?

[E as in ERISA]

A Form 5330 should also be filed to pay penalties to the IRS (its reported as a loan from the employer to the plan -- and penalties are calculated based on the earnings that the employer adds to the late deposits, not on the late deposits themselves). And the late contribution should be reported on the Form 5500 (which is both a DOL and IRS filing).

[RCK]

Keep in mind that you have to file a 5330 for each employer tax year in which there is an implicit loan to the employer. So if you have a calendar year filer, then you will have to do 5330 filings for 2001, 2002 and 2003.

The actual interest calculations are nasty--for each month you have to compare the Federal Short Term rate with the actual rate earned, and credit the higher of the two.

RCK

[Tom Poje]

In the back of my mind, buried deep, deep in the recesses, places never to go, I believe you have to rerun the ADP test.

1.401(k)-1(b)(4)(A)(2) you can only count deferrals actually deposited within 12 months!

[Kirk Maldonado]

Back in the recesses of my mind is a recollection that a loan that is treated as a new prohibited transaction each year, which significantly increases the amount of the prohibited transaction tax.

[Blinky the 3-eyed Fish]

I used to love recess in elementary school. We'd play kickball.

[Tom Poje]

That must have been what happened. Got hit in the head with one of those kickballs. That will bury anything deep in the mind.

(Put a good dent in the ball as well)

[Alf]

I believe you have to rerun the ADP test.

1.401(k)-1(b)(4)(A)(2) you can only count deferrals actually deposited within 12 months!

That is brutal! Great point, but that is a new one for me.

[katieinny]

That's exactly what I needed to know. Thank you for the input.

[BFree]

Regarding -

1.401(k)-1(b)(4)(A)(2) (you can only count deferrals actually deposited within 12 months) and its corresponding 401(m) regulation that is similarly worded -

What is the reasoning behind this? If the affected participants are solely HCEs, does this change the way you proceed in a given situation?

I see that you must test under 401(a)(4) in the case of deposits after 12 months. Does this preclude you from making a correction to only HCEs? If so, what about the operational failure of not providing the correct Match.

Any insight is appreciated.