Late Deposit of Deferrals - VFCP

[Nassau]

The client recently identified that they withheld elective deferrals from participants' 12/24/2010 payroll but never deposited the funds into their accounts as they should have.

I've explained to the client that they should seek legal counsel to determine the most appropriate way to address this correction and have also forwarded them the prescribed correction VFCP procedures taken from our Q&A on timely deposits.

The client has subsequently forwarded VGI a regular contrib. file with these previously deducted deferral amounts which rejected in our Recordkeeping System because the additional amounts in 2011 put participants' over the 402(g) limits.

Questions:

Q1. Since 2010 plan year has already passed, should these missing deferral amts. now be returned to the participants along with corrected W-2 tax forms for that tax year?

Q2. If the answer to Q1 is "yes," should the client deposit (read as "fund") those unposted EE amounts into their QNEC source along with the associated earnings?

Q3. If the answer to Q1 is "no," how should those EE deferral monies be posted to the participants' accounts without impacting prior year testing/tax related issues?

[Jim Chad]

They should be posted in 2010 and they should affect testing etc. and you should charge to redo this work and to file VFCP. IMNTBHO