"Routine" DOL review

[Belgarath]

So, suppose the following:

A 401(k) plan is selected for DOL review. They send the normal checklist requesting documents, etc., within 10 business days.

This, (naturally) happens to be a messy plan, not in terms of any malfeasance, but the sponsor had tremendous financial difficulties and is just now emerging from bankruptcy, although not yet formally approved.

5500's have not been filed for a couple of years, because they had absolutely no funds to pay for plan audits, etc. - plan sponsor was aware of the problems/risk, and was planning to file under DFVCP as soon as possible.

Here's the question, because I've had very little experience with bankruptcy situations. When the client submits the documents, which obviously will highlight the fact that 5500's have not been filed for 2 years, should they also submit any sort of explanatory statement, referencing the bankruptcy and including a copy of the bankruptcy filing? Or, do they just submit only the documents that were requested (practically everything) and wait for the next step?

My normal inclination would always be to submit it "up front" and get it all out in the open, but as I said, I have no experience in such a situation, and wondered if someone else did, and might have some pearls of wisdom?

Thanks!

[hr for me]

I am curious as to other viewpoints also. Personally I would be unfront with it along with the explanation and how/when you expect to correct it. Because it is my understanding that it is a lot worse if they point it out in audit (you don't think get to correct the easier/less expensive way).

We got a letter years ago about a wrong plan number from the IRS and realized a very old plan (under a prior HR admin) never had the last 5500s filed (due to one small balance being left in the plan). I was able to file and pay a lot less than had the DOL found it in an audit. But it's been a while and I haven't kept my knowledge current on late 5500 filings.

Hopefully you haven't missed that time window.

[My 2 cents]

Did I hear somewhere that if the plan is under investigation by the DOL, DFVCP correction of the failure to file Form 5500's is not available?

[Bill Presson]

I would not make the decision or give recommendations at this point. I would put them in touch with an ERISA atty as soon as possible. Because I'm not sure the DOL is going to be terribly happy. In a bankruptcy, the judge would approve audit fees for the plan (if the sponsor had to pay) or the fee could have been paid by the plan.

Obviously, I don't have the full picture, but just not filing doesn't seem like the appropriate tactic.

[Peter Gulia]

Belgarath, I have experience with situations involving near-insolvent, insolvent, and bankrupt employers. I have some practical suggestions about how a fiduciary might get and use help. The ideas depend too much on the particular situation's facts to explain efficiently without a conversation. Feel fee to call me for those explanations. That the employer lacks money need not be an impediment to getting help and correcting what was or wasn't done.

[Belgarath]

Thanks all. Peter, thank you very much for your offer, and it is great to know that you have specific expertise in this area. If it becomes necessary, we'll certainly refer the client to you - but this particular client generally prefers the "ostrich" approach, and isn't going to take any steps unless DOL actions make it mandatory. It'll be interesting to see where this goes...

[Peter Gulia]

Thank you for the kind words. Without any expectation or hope for an engagement, my offer of free help to you, Belgarath, remains open. (I'm out-of-office Tuesday.)

[Belgarath]

Thanks Peter, that's very generous of you!

[Griswold]

My 2 Cents--

Sort of. Eligibility for the DFCVP is limited to plan administrators who have not been notified in writing by the Department of a failure to file a timely annual report under Title I of ERISA.