Late Remittances - Mistake of Fact Exception?

[Guest Chaffee]

Plan withholds from payroll at several service centers. Data is accumulated centrally in a large spreadsheet (as required by custodian) and submitted to custodian, who withdraws funds based on the sheet.

For February 2003, one division accidentally re-reports January 2003 activity. As a result, custodian withdraws funds for February (timely) based on January information. Some participants receive too much in February, others too little. Net impact is small underpayment.

In this situation, is there any basis that a prohibited transaction has not occurred? Is there an exception for mistakes of fact or plain clerical errors?

[Appleby]

Try this link for starters

http://www.benefitslink.com/boards/index.p...istake,and,fact

[Brian Gallagher]

The mantra at our office:

"Mistakes" are not "Mistakes of Fact". What facts were mistaken? A good example of a mistake of fact:

A person is hired and shows documentation that she is 22 yrs old. She starts deferring immediately. It turns out later that she really is 19. Mistake of Fact may be used, because the Plan actually thought the facts in the case were actually other than they really were. There was no error, just a mistake of the facts.

If the payroll dept erred in entering her birthday three years earlier, then it's an error, not a mistake of fact--the plan knew she was 19.

[Appleby]

Brian,

You may be right, but not for the reasons you state. A “mistake of fact” does not occur because facts and circumstances were mistaken. A “mistake of fact” does however occurs when there is a clerical error...

The erroneous input of data could be construed to be a clerical error

[Appleby]

addendum

For the example you cite, the mistake of fact would occur when the clerk inputs the wrong age into the system ( or database that is your source for determining eligibility) - not when you failed to verify age and assumed the hiree was being truthful

[Guest jashendo]

Chaffee --

If you're concerned about the prohibited transaction issue, then both "mistake" and "mistake of fact" (particularly in the context being discussed) are irrelevant, as neither will excuse a violation. However, it could go a long way towards supporting an exemption and/or VFCP request (delinquent contributions are eligible for VFCP and the related automatic exemption).

[Guest Chaffee]

jashendo -

You are correct, that is the ultimate issue and it doesn't appear that they will be excused from the prohibited transaction. They are not concerned about the dollars, as they essentially only failed to remit the net difference between the January and February amounts, not an entire payroll.

The primary concern is actually having a Schedule G and reporting late remittances after just coming off a DOL audit and correcting various late remittances. This one was timely, there was just a clerical error. Is there any basis that this may be viewed as a situation where you would check Line 4d and complete a Schedule G, but not have to check box 4a (I know it's a stretch, but I want to let them know all options have been considered).

Thanks

[Guest Chaffee]

addendum

As you can tell, they are not terribly interested in filing the VFCP, and would, if given no other options, take their chances with the Schedule G / 5330 route (since dollars are so small).

[Brian Gallagher]

is there any place that defines a mistake of fact? all i have is an old, photocopied document that discusses mof's. it's from '95 and has a copyright of "Pension Plan Fix-It Handbook" by thompson publishing.

it has sections like: "mistake of law is not a mistake of fact"

"a change in facts is not a mof"

"a mof is not a 'screw up'"

"a mistake of fact generally occurs where one, in good faith, understands the facts to be other than what they are"

we rely on these four bullets all the time. is there any place in the code or regs or elsewhere that further defines a mof?

(sorry about the e.e. cummings bent to the post (all lower case), but i'm lazy today)

[Appleby]

Would a PLR work

PLR_9144041.doc

[Brian Gallagher]

thanks.

perfect!