Form 5330

[12AX7]

Plan had late contributions for several payrolls (1 or 2 days late - large plan). The lost earnings are to be deposited this week. No VFCP.

Is the date of correction on Schedule C the date the deposit was made for that particular payroll, or is it the date that the lost earnings were deposited?

Thanks.

[jpod]

How exactly was it determined that you were only "1 or 2 days late"? If you are counting days from the 15th business day of the following month, I suspect that DOL would say you were a whole lot more than 1 or 2 days late.

[12AX7]

This question is not about determining when contributions are late. I'm trying to determine what date goes on Schedule C of Form 5330 for "Date of Correction." If this is the date the PT is considered corrected, then is the correction date when the deferral was deposited, or when the lost earnings get deposited? Here's an example:

Payroll Date - July 16, 2011

Remittance Date - July 18, 2011 (safe harbor does not apply!)

Lost Earnings Remittance Date - October 23, 2012

I appreciate any insights into this matter.

[ESOP Guy]

I tried to find a cite for my position real quick but couldn't. I really was thinking the instruction to the 5330 answered your question but didn't find it.

But my understanding is the correction is not done until all of the interest is paid. So the date of correction is the date the last of the interest is paid.

My understanding of the logic behind that answer is the PT is the use of money and you are paying the tax on the interest. So until all the interest is paid you still have a PT.

[12AX7]

I couldn't find an exact answer in the instructions either. If I take the position that the PT ends on the date that the lost earnings are reimbursed to the trust, then it seems that the PT occurred in 2011 and 2012. If that is true, then would I calculate the penalty for 2012 on the lost earnings?

[rcline46]

Me thinks there is a disconnect. Confusion over 'lost earnings' penalty for late deposit, and the interest calculation for purposes of the 5330.

5330 interest is calculated on the PT (missed deposit) from date of failure to date deposit is put it. You need to read the rules on LOANS as PT, since the IRS considers this an impermissable loan from the plan to the sponsor. I do not recall the specific RP or RR on this, but in the 5330 instructions, you are using the LOAN rules.

The 'lost earnings' to be given to the participants for the failure is calculated under one of the many variations in RP 2008-50, and they are not necessarily related to the 5330 interest.

Now to answer your question, the PT was cured when the deposit was made, and the interest only goes to that date. Hope it did not cross a plan year!

[12AX7]

Thanks. I was only trying to clarify the correction date.

[ESOP Guy]

12AX7

I did a few quick Google searches over lunch. Not sure if this helps or not. Look starting page 9. Not your exact situation but maybe that will give you a starting point.

http://www.irs.gov/pub/irs-tege/5330_phone..._transcript.pdf

[12AX7]

Thank you very much ESOP Guy. I'll take a look at it.

[jpod]

I am still wondering why you feel compelled to assume that there was a PT when the money was deposited to the plan 2 days after payroll date.

[12AX7]

It was the decision of the auditors for the plan, not mine. Most of the deposits were made on the same day as payroll. Since this is a large plan, there is no safe harbor deposit rule and the auditors felt compelled to report the late deposits. Total penalty is very small, but nonetheless I had to correct for earnings and report the PT.

[chc93]

We also had an experience with a large plan (no 7 business day rule). In this case, the DOL came in to audit (I forget why) and found that a few deposits over a 3+ year period were more than the "normal" 2 days or so... so some were 3 days late, some 5 days late, etc. VERY SMALL lost earnings, but they had to do it, along with all of the 5330's.

[12AX7]

It costs more to do the calc and prepeare the forms than the lost earnings and penalty are worth. It's a lesson for the client, but I do wish the 7 business day safe harbor rule did apply for large plans.

[ESOP Guy]

It costs more to do the calc and prepeare the forms than the lost earnings and penalty are worth. It's a lesson for the client, but I do wish the 7 business day safe harbor rule did apply for large plans.

I don't do any of these any more. But as recent as earlier this year I worked with a firm that had 401(k) plans and ESOPs and I found that to be true just about every time. I remember one time a few years ago I did one for a Safe Harbor Dr. plan and I spend almost $700 of time to compute the Dr. owed the plan under $20 to the plan. (Lots of deposits late just a few days) And the ironic part of it all was because one of the late deposits was the one where he deferred his bonus he got around 80% of the earnings. So he was the primary "victim" of his own late deposit.

Like so much of this field the rules were well intentioned and there can be real abuses that needed to be stopped, but they took a one size fits all sledge hammer approach to the solution.

[12AX7]

The link you proivded for the IRS phone formum was very informative. I had to slightly modify the way I was preparing forms based on the commentary from the Service. For purposes of preparing the form, I will assume they are correct because I could not really find what I was looking for in the instructions. Sometimes it seems like splitting hairs, but I rather get it right the first time.