Late Deferrals and VFCP/Form 5330

[J. Bringhurst]

Client corrected an untimely remittance of elective deferrals/loan repayments by contributing late amounts plus earnings (determined by using the earnings methodology under the VFCP), filing IRS Form 5330, paying the applicable excise tax, and indicating the prohibited transaction on Form 5500. Now, the DOL has come in and told them that they must file under VFCP (never mind that the "V" stands for voluntary)...we've just suggested that client send a letter describing the correction, enclosing a copy of the Form 5330 filing and politely telling them "no thanks."

Any thoughts?

[Archimage]

You are correct. They do not have to file under the VFCP.

[alanm]

Also, the DOL does not have the power to force you to do anything. They must go through civil court to effect any remedy they promote. If you say you are going to court, they will settle-- they don't have the staff to pursue it. In most cases, if you ask for a review with the regional director and voice your side effectively, the DOL will change their tune. Also, if you file a 5330 with the IRS, the IRS does not tell the DOL you did it, there is no communication between the DOL and IRS, you must give the DOL a copy.

[J. Bringhurst]

Does anyone think that this will be a new trend with the DOL now that the prohibited transaction must be disclosed on Form 5500? It just seems weird that they'd come a calling and request that we file under their voluntary program.

[alanm]

This is not a new trend, it is just a fickle auditor.

[jquazza]

I think the DOL only sends these letters to make the general plan sponsor population aware of the correction programs available. I would reply to them that the plan has already corrected the problem.

Does anyone think that this will be a new trend with the DOL now that the prohibited transaction must be disclosed on Form 5500?

I believe it's actually the opposite, to avoid redundancies, you do not have to report late deferrals as prohibited transactions any longer, a schedule of delinquent particiapnt contributions is used instead.

DOL FAQs on Late Deferrals

[J. Bringhurst]

Thank you!