Late deferral contributions; can excise tax be waived if delay is due to TPA's refusal to accept and process them?

[Guest Shmedd]

I am conducting an audit of a 401k plan and during the course of the audit discovered that the Plan sponser has failed to transmit contributions timely.

This problem was unique to the beginning of the year. The plan Sponsor changed TPAs in effective March 1st.

When the sponsor went to remit its contirbutions in March for February, the new TPA refused to take the contributions until they were transmitted in the format that the TPA is a customed to.

The client uses ADP spent 2 months trying to get the necessary reports and encrypted files the TPA required.

My position that these are late transmittals and need a schedule G and 5330 filed for excise tax and make up of lost earnigs for the 2 months.

Is there any way to get the exise tax waived? This was due to the transation of TPAs and not the sponsor.

Thanks

[RCK]

I'd say that as long as the sponsor did not segregate the contributions from its own assets, you have a prohibited transaction, and not much chance of getting out of it. Besides, the penalty is based on the interest and the interest is for two months on one month's contributions (plus a compounding of that amount). It just is not a lot of money, unless somehow the actual return on one or more of the funds was outrageous.

And the penalty is just 15% of the interest. By the time you get down to the penalty, it typically is more trouble to calculate it than to pay it.

RCK