Delinquent contributions - large to small plan

[TPApril]

Takeover plan was being done in house (no tpa).

Reviewing 401(k) deposits back to 2011 (2010 5500 is last to report delinquent contributions).

2011-2013 as large plan did not file audit report, and will not pay for audit report now

In 2014 plan went from large to small

Average delay from payroll date to deposit date from 2011-2013 is 35 days, though one time they deposited in 6 days.

Contemplating the following:

-how many years to review? to 2011, or back 3 years?

-apply small plan safe harbor of 7 days to analyze large plan timing, or apply 6 days or 35 days or until 15th of following month for that period?

A thought would be appreciated:)

[RatherBeGolfing]

A few thoughts:

Are they just not going to do have the audit done for the years it was a large plan?  That is a compliance issue I couldn't ignore.  Either do it or move on. 

How many years to review?  You know of issues going back to 2011.  Same theory as above applies.  You can't ignore known compliance issues.  And these are pretty bad.  A 35 day average for a large plan is a BIG deal to the DOL.  You need to go back to 2011 and fix it.

You can apply the 7 day safe harbor for the small plan years, but not the large.  Unless you extraordinarily complex payroll system, 6 days isn't going to fly for a large plan.  This is one of those "the rules are the rules" situations.  35 days 15th of the month following are non starters.  An auditor will probably apply 2 days but sometimes a few more in rare cases, if reasonable.

Here is what it comes down to to me:  Don't make the clients problems your problems.  They have serious compliance issues. Those issues need to be fixed properly.  You are a professional.  You know how to fix those issues properly.  Don't create problems for yourself by not doing it right just because you want the business.  It isn't worth it.  Hopefully the client will realize that you are looking out for them and do the right thing.

 

[TPApril]

Thank you that's excellent advice and I will take it (I recognizing you are offering an opinion).

One more comment on the plan - it's the type of plan that will benefit if they change the definition of large plan to participants with account balances. Large number of low paid staff who had made eligibility, very low participation rates.

Oh, one more comment, until very recently they were mailing in their contribution checks instead of uploading online.

[RatherBeGolfing]

When contributions are mailed, use the date it was mailed rather than the date it cleared.  The mailing date is when the contributions were separated from the employers assets.  That will take a few extra days off your count.  

 

[BG5150]

With the plan being done in-house, any other compliance issues?  Were they running ADP and top heavy tests?  Any 415 issues?  402(g)?

[ESOP Guy]

Not trying to talk down to you but I would get written acknowledgement this correction work is out of scope work and how it will be billed.  I don't always do that but this is bill is going to be a large number and I wouldn't want any fights on billing after spending all those hours fixing all of this. 

[Belgarath]

I'm not sure I understand what you mean by changing the definition of large plan to participants with account balances? Do you mean, just as an observation, that if the DOL changes the rules in the future that this client will benefit?

[RatherBeGolfing]

40 minutes ago, Belgarath said:

I'm not sure I understand what you mean by changing the definition of large plan to participants with account balances? Do you mean, just as an observation, that if the DOL changes the rules in the future that this client will benefit?

Not OP obviously, but that was my interpretation.   Wouldn't help the past years but would keep employers with lots of employees but little participation from being large plans if the count is by P's with a balance.

[TPApril]

Thank you for your comments.

Belgarath - I thought one of the proposals (effective 2020?) was to change the definition of 'large plan', that's what I'm referring to.

BG5150 - yes to other compliance issues, including a missed plan document restatement. None of the issues you list have popped up as this plan is in place more for employees than owners who have not historically contributed.

RatherBeGolfing - I would love to use the mailing date, but all I have is the check date, unable to verify when the checks were mailed. If we do use check date, delinquent contributions are cut in half.  Plan Sponsor says recordkeeper 'took forever to deposit the checks'.

[RatherBeGolfing]

5 minutes ago, TPApril said:

I thought one of the proposals (effective 2020?) was to change the definition of 'large plan', that's what I'm referring to.

That was part of the proposal.  My understanding is that the proposal has stalled because it isn't that high on the list of priorities and there is no funding to push forward at this time.  It is possible that we will get a new proposal at some time though... 

 

8 minutes ago, TPApril said:

I would love to use the mailing date, but all I have is the check date, unable to verify when the checks were mailed. If we do use check date, delinquent contributions are cut in half.  Plan Sponsor says recordkeeper 'took forever to deposit the checks'.

Yea if you can't nail down the mailing date it is hard to use it.  Is there a difference between when the money left the ERs account and when it was credited at the recordkeeper? Sometimes the RK will deposit one day and credit it in the following days.  if so, you can use the earlier date since we are looking at when it was segregated from the ER assets.  It might not be much per transaction but over the years the savings can really add up.

[TPApril]

40 minutes ago, RatherBeGolfing said:

Yea if you can't nail down the mailing date it is hard to use it.  Is there a difference between when the money left the ERs account and when it was credited at the recordkeeper? Sometimes the RK will deposit one day and credit it in the following days.  if so, you can use the earlier date since we are looking at when it was segregated from the ER assets.  It might not be much per transaction but over the years the savings can really add up.

Thank you.  Recordkeeper says their dates reflect date received. I don't visualize asking ER for their bank records back to 2011 as the only other way to document.