Fees vs. Sanctions

[Guest Jose Rosario]

Rev. Proc 2003-44 sets out the VCP filing "fees" and Audit CAP "sanctions". Plan assets may be used to pay administrative expenses. I sure I'm splitting a semantical hair, but since the VCP costs are specified as "fees", not "sanctions", giving the language of the Rev. Proc. its ordinary meaning, has anyone considered making the argument that a sponsor who files under VCP for nonamending may pay the costs out of plan assets?

[E as in ERISA]

I don't know the answer. But the fact that its a "fee" does not mean its automatically payable by the plan. Some fees must still be paid by the settlor. I think that the DOL has previously indicated that an amendment that helps a plan maintain its qualified status benefits both the settlor and the plan, so the settlor must pay part of it. You could try and make the same argument here -- that it benefits both and the fee should be split. Realistically, if the VCP was not filed and the plan was later audited, the sponsor who probably end up paying a sanction under CAP in order to avoid disqualification. So the fee is in lieu of possible sanctions. So under that logic one could argue that only the sponsor benefits from going through VCP. Especially if the sponsor is responsible for the disqualifying error.

[Guest Jose Rosario]

Thanks, Katherine. I guess the argument could be made for at least splitting the fees, but even that argument is probably a loser.