Late Deposits for 401(k) Contributions for multiple years

[buckaroo]

I have a client who has been having major financial difficulties for the past few years. As a result, they are consistently delinquent depositing the 401(k) contributions. (The client has sometimes been months late with the deposits.) When this first occurred in 2001 (under Voluntary Fiduciary Correction Program (VFC)), we calculated the lost earnings (using the greater of actual earnings and IRC 6621) and the penalty amount (under IRC 4975) for the client and completed Form 5330 for their signature. They made the deposit to the plan account for the lost earnings in 2002.

Then, in 2002, the client was again delinquent depositing the 401(k) contributions. We completed the valuation, Form 5500, and informed the client that they needed to make a similar correction (but exactly the same correction) to the plan for the delinquent deposits. Due to a billing dispute, the final correction work was never completed.

In February, 2003, they came back to us and brought their account (with us) up-to-date and asked us to complete the 2003 Valuation. We are in the process of completing the valuation and (surprise, surprise) they were delinquent depositing the 401(k) contributions for 2003.

Here are the first round of questions:

1) Since we used the VFC program in 2001, can we use it again in 2002? 2003?

2) If yes, what needs to be done? Is it as simple as the calculation the lost earnings (using the greater of actual earnings and IRC 6621) and the penalty amount (under IRC 4975) for the client with Form 5330? Is there anything else we are missing?

3) If not, what needs to be done to correct the problems above?

Any help would be greatly appreciated.

[BeckyMiller]

Your client is permitted to correct under the DOL's VFC program. There is no limit to the number of such requests that may be submitted. However, if they requested relief from the excise tax on the first submission, they are not allowed to request such relief again with the subsequent submission. The class exemption that provides relief from the prohibited transaction penalties for late salary deferrals is limited to a single such request on the same facts in any three years.