Late 401(k) contributions for mutliple 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.

[Demosthenes]

Run, do not walk, to the nearest exit.

Your client has engaged in repeated and egregious violations of the regs. They have established a pattern of failure to comply and you are fully aware of that pattern.

The best advice I can offer that you resign as the service provider before some participant drags you into a lawsuit or the DOL investigation.

[J. Bringhurst]

This is really not on point with your questions, but it was my understanding that, if you file under VFCP, there is a class exemption (eff. 11/25/2002) from the excise tax under 4975 and you do not need to file IRS Form 5330 and pay the 15% tax.

http://www.dol.gov/ebsa/regs/fedreg/notices/2002029799.htm