Late Contributions ~ LOI from Sponsor to TPA

[Guest HiKidsImASrPensionAdmin]

Just looking for some thoughts on this...We have a client that did not contribute a single payroll to the plan timely last year. My boss (the owner of the TPA firm) thinks we should complete the Schedule I showing the $93,000 in deferrals as being late. Then complete the 5330, making the client pay the excise tax, and calculate the gain the employees missed out on. I agree that this is the right thing to do.

The broker, on the other hand, wants us to prepare the Schedule I with that question unanswered, leaving it to the employer to answer it. Then include a letter of indemnification for the employer to sign clearly stating that they will not hold the TPA responsible for any issues that arise from the incorrect filing.

I know my boss is going to end up doing what the broker wants. Which leads me to this...any thoughts on what we should include on the letter of indemnification? I am going to include information on the DOL regs and am thinking that we should also state we will not represent them during any IRS or DOL audits.

[E as in ERISA]

Starting point is that you do for the client what they have hired you to do and you don't do what you're not hired to do. And make sure you're taking direction from the client not another service provider.

Are you're hired to prepare a complete 5500 based on information you have? Then adjust the agreements to say you're doing an incomplete draft if that is all you're comfortable doing.

If you're not hired to prepare 5330s, you don't prepare them.

[david rigby]

Here's a thought. Talk to the plan sponsor!

Perhaps the sponsor is not aware it may be (is?) in violation of anything, and would appreciate the information.

[Effen]

I agree with PAX. You work for the client and have a responsibility to report to him any problems you discover. Also, how do you expect the client to fill this out? Since the bar code is the only thing the scanners scan, if you don't do it, than it isn't in the bar code. I don't see how having the client complete it is a viable an option.

I learned a little saying long ago that has helped me a great deal... "don't make your clients problems, your problems" Lay out the facts and ask them how they would like you to proceed. If you don't like the option they select, decline the work.

[stephen]

Don't forget the penalty is on the earnings from the late deposits not the late deposits themselves. Thus, the penalty is probably substantially less than 10% of the deposits.

I agree that you should consult with the client and let them know the situation and take guidance from them not the broker.

If you have a question regarding late deposits on your year end information request where the client has told you they did or did not have any late deposits this could be the starting point of the conversation.

[Guest HiKidsImASrPensionAdmin]

All interesting points...but lets say you discussed the situation with the client and they are aware of the regulations. They are also aware that the way they are making contributions is not following the regulations. They are fine with a draft 5500 being prepared with a final version completed once they decide how to answer the question on the Schedule I.

If they decide to complete the 5500 stating that there were no late deposits, would you request something from the client stating that you are not responsible for the inaccurate filing, penalties, audits, etc? If yes, any thoughts on what it would say?

Effen, I like the quote and I would love decline the work, but I am not in the position to tell the client to find a new TPA!

[Guest Pensions in Paradise]

IMHO your firm is walking down a slippery path. You need to inform the client in writing about the problem. If the client refuses to correct the problem, your firm should resign. Otherwise you're just as guilty as the client. Not legally, but morally.

[QDROphile]

So outlaws can get lawyers, but not record keepers?

[Belgarath]

A really unfortunate situation. I'm truly sympathetic that you don't feel you can afford to decline the business, and I'm not trying to sound sanctimonius, but I've always felt that you need to do it right or not at all.

It is, as someone mentioned, a slippery slope. Once you compromise your principles on this case - where does it end? Do you allow a backdated amendment that reduces benefits improperly, as long as the client says in writing that you won't be responsible? etc.?

I don't have any answers for you, other than to consider seeking legal counsel before you decide to administer the plan on the basis outlined. At the very least, you need to protect yourself from liability - whether this makes you liable as party to a known fiduciary breach, or criminal action with submission of incorrect 5500 forms, etc., I can't say. I can say that in similar situations, we have terminated services.

Best of luck with a tough situation, however it goes.

[Guest HiKidsImASrPensionAdmin]

A really unfortunate situation. I'm truly sympathetic that you don't feel you can afford to decline the business, and I'm not trying to sound sanctimonius, but I've always felt that you need to do it right or not at all.

I agree that we should decline the business...but as my username suggests, I am only the Sr Admin at the firm. I don't get to make any of the official business decisions.

I would really like to be able to sit my boss down and have something solid to back up my position. Is anyone aware of court cases where the TPA, who does not process the contributions and has no control of the contribution processing, was held liable in this type of situation?

[FormsRstillmylife]

I don't think you could find a court case. The point of concern I would have is your ability to practice before the IRS. If the IRS ever learns that your firm knowingly prepares false 5500s, how long would the IRS continue to permit your firm to prepare 5500s? If your firm is known to commit perjury, how long would the IRS let it make VCR filings for clients? This falls under Circular 230 and the IRS's power to police who can practice before it.

I don't know how or when the IRS would learn of these practices, but the consequences make you pause.