2005 Contributions Not Paid

[Guest Ted Kowalchuk, CFP, CFS,]

While I'm sure I know what needs to be done, I thought I'd double-check with more experienced practioners. A new bookeeper just discovered the $4,000 catchup contribution was not listed on the Dec 2005 payroll report. Thus it was never paid to the investment company by the client. But, the W-2 reports an $18,000 deferral. The correction I propose is 1) Immediately pay the $4,000 with calculated interest, 2) File an amended 5500 and Schedule I a) increasing the ending balance by the $4,000 and b) changing the response to "yes" on Part II 4a, and 3) File a form 5330 and pay the excise tax. Not that it matters, the affected Participant is the owner's wife. I'm not looking to take any shortcuts.

[Stevo-PDX]

You might also consider using the DOL's Voluntary Fiduciary Correction Program. This eliminates the IRS penalty, gives you an online calculator for calculating the lost earnings and may head off a letter form the DOL in a few years inviting the plan sponsor to participate in the VFCP. Yes, the application is longer, but the DOL will even help you fill it out over the phone. It also allow the sponsor to indicate on the schedule I that they participated in the VFCP.

http://www.dol.gov/ebsa/newsroom/fs2006vfcp.html