prohibited transaction penalties for an ERISA 403(b)

[Belgarath]

So, 403(b) plan sponsor withholds deferrals way back when, and never submits them. So multiple years involved.

I'm trying to determine how this works for both calculating the penalty, and submitting it/requesting a waiver.

When you start with the 5330, you quickly realize that even if the 403(b) plan is subject to Title I of ERISA, it is not a "plan" subject to IRC 4975(e)(1). But it IS (in this case) subject to Title I of ERISA, and the prohibited transaction penalties.

So, is it really just as simple as submitting a VFC filing (in this case, it is worth it) and calculating the interest amounts using the VFC calculator, and requesting a waiver of any PT penalties? And if so, what has your experience been about a waiver being granted?

I feel like I must be missing something.

[jpod]

Perhaps not responsive to your Q, at least not directly so, but take a look at the very little-used Section 502(i) of ERISA if you haven't already.  

[Peter Gulia]

The key point of DoL-EBSA’s Voluntary Fiduciary Correction Program is excusing a penalty that applies on a nonexempt prohibited transaction or a fiduciary’s breach.

 

If a situation fits within the 19 transactions that can be corrected under the VFCP, neither the plan nor the applicant is under investigation, and the applicant meets all VFCP conditions, a ERISA § 502(l) or § 502(i) penalty is excused on the correction amounts paid without negotiation with the Labor department.  (VFCP relief does not apply to the extent that one involves the Labor department in a settlement or a negotiation of the terms of a correction.)

 

Because the Labor department may impose an ERISA § 502(c)(2) penalty on an incomplete or inaccurate Form 5500 report, an administrator might file corrected reports for those reports (if any) that incorrectly stated no contribution was missing or late.

 

As your query explains, for a prohibited transaction regarding an IRC § 403(b) plan there is no IRC § 4975 excise tax to relieve.

 

[Belgarath]

Thanks Peter. They also never filed 5500 forms at all, so those were recently submitted under DFVCP. There's an IRS VCP filing being submitted shortly, so only the PT issues left to be cleared up. So it sounds like I was understanding it correctly. I'm just always surprised if anything is easier than I expect - it makes me nervous!

[401(k)athryn]

I have the same situation - late deferrals to an ERISA-covered 403(b) Plan going back a few years.  I will need to amend 5500s to reflect late deferrals and will be separately fixing an employer contribution error under the IRS VCP program. 

Easy question - I am not seeing a fee to file with the DVFC program.  Is that correct?

 

 

[Belgarath]

If you are asking about the Voluntary Fiduciary Correction program (VFC) then that's correct - no fee. If you are talking about the 5500 program (DFVCP) then yes, there's a fee.

Sometimes the letters in this alphabet soup get mixed up, and I'm not entirely sure what's being discussed.

[401(k)athryn]

Thanks, Belgarath!  I was referring to the DOL's Voluntary Correction Program.  I appreciate the response!