VFC

[Guest cease]

Hi.

Has anyone gone through the EBSA VFC program to correct late deposit of EE 401(k) contributions to the plan's trust? The info on the website mentions that to encourage the use of the program, that the DOL has granted a class exemption providing "LIMITED" relief from the excise taxes under IRC.

If anyone has gone through this program, can you define how "limited" the excise tax relief was?

It also appears that there is no fee to use this program. Is this true, or is there a cost? In addition to favorable relief of the excise tax, I like the fact that you also walk away with reliance from the DOL that the plan would not be subject to a DOL audit down the road (for this specific delinquency).

I look forward to hearing from people about this program.

[Guest jashendo]

Hi, cease.

The excise tax relief (under PTCE 2002-55) is "limited" in the sense that (1) it does not apply to all transactions that may be corrected under VFC -- only four categories of transactions, including late deposit of contributions, are eligible for the exemption, and (2) certain additional conditions must be met in order for the exemption to apply (though most of the additional conditions will not be applicable in the case of late deposit of contributions).

You are correct that there is no fee for VFC, but there can be a "cost." this is because the prescribed correction methods are usually the most expensive alternatives available. For example, in order to correct late deposit of contributions, the employer must also deposit "lost earnings", equal to the greater of the actual plan earnings rate (usually for the highest-earning investment alternative in the case of a participant-directed plan) or the tax underpayment rate under 6621(a)(2) of the Code (which is also well above "market").

[Guest jashendo]

Sorry, it's 2002-51, not 55. I guess I should have previewed.

[Guest cease]

jashendo,

Thanks for the response.

[Guest planman]

We filed this for our 401(k) plan that had late deposits. We are still waiting for EBSA to accept it. There is no fee to file, but it is expensive and time consuming. The expense is for the lost earnings. We provided lots of documentation too. To comply under the administrative ease rule, we gave ALL contributions the highest investment return of the plan during the applicable period. We wanted to be fair to participants for lost earnings, but this was a windfall to them. One fund performed really well, so everybody gets earnings at that rate. They got the highest return with the lowest risk. Alternatively you could calculate individuals actual returns based on their investment elections. But that is too much effort to factor in all the changes people made. I hope our participants realize the late deposits was wrong, but we really made up for it.