Late Contributions & 6621(a)(2) Tax Rate

[Guest ChopperPilot]

1) What is the current 6621(a)(2) underpayment tax rate to be used for calculating interest on late employee salary deferral contributions.

2) Must the VCR program(s) be used, or can the client discretely make all of the necessary corrections?

[Guest jashendo]

1) currently 5%

2) "discrete" self correction really isn't available. EPCRS self-correction doesn't apply, because the problem involves a prohibited transaction subject to excise tax. So the DOL's VFC program is really the only safe solution. (Of course, you could "correct" without going thru the drill, but you wouldn't have any protection from the DOL, and you would still be liable for the 4975 excise taxes.)

[Guest mschenk]

I agree that the primary correction relates to prohibited transaction. However, I have seen plans that include in their terms the date by which deferrals must be contributed to the plan trust (e.g., they recite ERISA reg requirements). Late forwarding of deferrals would then be a failure to follow plan terms (an "Operational Failure" under EPCRS) and sponsor should probably go through EPCRS self-correction. Next time plan is amended, sponsor should get rid of the deferral contribution date language - it's not required.