Received letters from DOL after using 5330 to report earnings made up for late 401(k) deposits

[Guest CBS]

We have had clients with late deposits. We did not go through the DOL program - but we did calculate earnings on late deposits and filed the 5330 forms. Three of our clients in the last few days got a letter from the Pasadena office the DOL - tellling the client they need to submit under THEIR program. Is anyone else going through this?

[Guest rmeigs]

CBS: The DoL has been pretty clear that correcting late deposits require that an employer, who is not yet the subject of an investigation by EBSA, must participate in the department’s Voluntary Fiduciary Correction Program (VFCP) to correct the issue.

For more information, see this link:

http://www.dol.gov/ebsa/newsroom/0302afact...t.html#section4

[Harwood]

The DoL letters surprise me.

"If participant contributions are delinquent, plan officials must take appropriate action to correct the violation. Although plan officials are not required to file an application with the Department under the VFCP to correct a violation, the VFCP is available to correct a loss of any amount resulting from a transaction covered by the program. Participation in the VFCP is voluntary. However, if you do not file an application with the Department, you cannot obtain the relief available under the program."

http://www.dol.gov/ebsa/faqs/faq_VFCP.html

[Guest svatty]

You are NOT required to use the DOL correction procedure. If you self-correct this problem you can not take advantage of the excise tax abatement and of course have no DOL protection on a future audit of the issue. However, if you simply correct your individual problem in the EXACT same approved method of correction established by the DOL what could the DOL do to your client upon a subsequent audit? The problem has been corrected in the EXACT same manner as the DOL would have required.

[Guest CBS]

Thanks. The letter offers a form to explain corrections if we are NOT going to file a VFCP application, but does state that if we DON'T know submit the application it is an issue subject to investigation in the future. And penalities. Any advice as to whether we explain what we did? Or go for full submission?

[Guest svatty]

Assuming you corrected your late contribution problems under the parameters required by the DOL's program, I would simply reply to them that you have already corrected the problem, as per their own program correction requirements, and throw in the quote from their program mentioned above.

The main DOL fine/penalty that can be assessed, under Section 502(l), are offset by the excise tax amounts you already paid to the IRS. In most of my cases the excise tax has been higher than the DOL and you get to basically tell them to "pound sand" as that is the only "penalty" the DOL can assess. If they try and threaten with some other prohibited transaction "mysterious" assessment, your best weapon is their own program that shows the permissible methods to correct the p.t. and make the plan and plan participant whole.