Late employee contributions question

[Guest LVanSteeter]

I haven't run into this particular situation before and wanted to see if anyone else had or had any ideas:

In 2004 small plan (plan year end 12/31) discovers late participant contributions from 2003 & 2004. The enter and complete Voluntary Compliance (received final DOL letter). The plan has filed for extension for 2004.

On Schedule I, do they answer yes to late contributions question or not?

If yes, do they complete the Form 5330?

[Archimage]

Yes, you still answer yes on the 5500. In order to be exempt from filing the 5330 and the excise tax you must follow the steps in PTE 2002-51. They basically are:

1. Complete VFCP

2. Notify DOL in VFCP that the client is using PTE 2002-51

3. Receive "no action" letter

4. Have late deferrals deposited no more than 6 months after the failure

5. Give affected participants notice no more than 60 days after your VFCP application submission

If you don't meet all of these exceptions, then you still have to file the 5330 and pay the excise tax.

[R. Butler]

If you don't meet all of these exceptions, then you still have to file the 5330 and pay the excise tax.

Do you generally see any benefit in going through VFCP for late deferrals? The 5330 isn't difficult to complete & the excise tax is ususally pretty nominal.

I'm just curious as to what other practioneers are doing. So far we haven't used it because we really don't see the benefit.

[Archimage]

I agree. I haven't seen the benefit. I always recommend to clients to just pay the excise tax. The fees charged for a VFCP submission would be higher than the excise tax. I guess it would have to be a very high late deposit. However, even in a situation with a large amount like that, it is still hard to have an excise tax on earnings over the course of six months.

[Blinky the 3-eyed Fish]

However, as perhaps others have discovered, the DOL has been contacting plan sponsors who marked "yes" to 4a and asked that they "volunteer" to go under the VFCP program. I believe this is a new initiative, so I don't know the ramifications of declining their invitation, like perhaps an audit. I also don't know what percentage of people are being contacted who marked "yes".

[Guest xab]

Blinky, I just had a client who received a similar letter. The problem is that the client did not mark (and never had a reason to mark) "yes" in Box 4a. So, this was a letter generated in error. Still, the fact that the letter requests that the client advise EBSA of whether they restored lost earnings in the event they do NOT choose to apply under the VFCP is alarming.

I would also be interested in hearing if anyone who has received this sort of form letter has ever been contacted if they did not attend the seminar and file under the VFCP program.