Is the contribution really late?

[TBob]

While a client was balancing their checkbook and reviewing their uncashed checks from 2003, they noticed that the check that they issued for the deposit of the January 2003 deferrals has never been cashed. They routinely issue their deposits to their 401(k) plan within several days of their payroll and send them via USPS to TPA. TPA records them and sends them on to a large institutional custodian.

The client did their part but neither the TPA or the custodian have any record of the check. The check was/is lost in the mail. If we set aside the question "Why are they just noticing this now?" are the contributions really late by DOL's standards? Do we need to use the DOL's correction program? Who would be liable to make up the lost earnings? Client? TPA?

[Guest gaham]

I believe this would constitute a late payment by DOL standards. You would need to weigh the cost/benefit of self-correction versus formal participation in the DFVCP. You may want to consider just self correcting using the DFVCP standards for lost earnings. You don't get the excise tax waived if you self correct but that probably will be less costly than a formal DOL submission. If you self correct you're only at risk on the 502(l) penalty to the extent that the DOL should disagree with the correction amount. Finally, I would think the DOL would look to the employer as the party responsible for the breach and, therefore, responsible for the correction payment to the plan. The employer may, in turn, have a cause of action against its contractors if the circumstances warrant.

[Mike Preston]

"The client did their part"? Really? Never balancing one's checkbook is "doing their part"? Not in my book.

[FundeK]

Does the client have any proof that the TPA received the information. Was the information sent registered mail where the TPA would have to sign for it?

As a recordkeeper, if the Client could prove we received the information and it was subsequently lost, it was our fault and we would provide lost earnings. However, if the Client could not prove we received it, it was all on them to fund the correction.

Who would be responsible for the breach if the Company could prove the TPA received the information but did not process it. I assume this still is a delinquent contribution in the DOLs eyes, but would they treat it any differently? (Just wondering)

[david rigby]

Perhaps not relevant, but why wouldn't the plan sponsor send the check (the actual money) directly to the "large institutional custodian", and a copy to the TPA? (1) Gets the money there faster. (2) Having a copy at the TPA provides a "cross-check" on the custodian.

[TBob]

More information for inquiring minds...

The contribution was sent via regular mail so there is no paper trail to prove that the contribution was submitted except for the carbon copy of the check in the clients checkbook.

The client send the contribution to TPA because old habits die hard. Prior to 2003 they were on a balance forward platform and converted at year end. In the old world, they had to send the $$ to TPA so they could direct the funds to individual participants accounts at the custodian and include a directive for the purchase of mutual funds with the deposit. Now they send directly to the custodian with a copy to TPA.

I agree with you Mr. Preston, that the client did not "do their part" by not following up on the outstanding check. This is a small plan and client has a pretty small operation. The accountant did balance the check book but obviously did not question the outstanding check for the entire year!

Finally, I guess that I don't see the point in using the DOL program since we are not going to get the excise tax waived anyway. The late contribution had to be submitted within 180 days in order to be eligible for the exemption if I read things correctly. The contribution was not huge so the excise tax is not as onerous as filing the correction with the DOL. I saw a thread in another board that said that the DOL has sent out a letter when an excise tax was paid for late contribs but no submission under their correction program was sent. Anyone else have this happen?