Money Purchase Plan - Funding deficiency for years and years

[Guest boberlander]

Recently, we've had a small Money Purchase Plan dropped in our laps. As we cannot ignore this any more, we must give the client some advice. I am not at all familiar with the correction programs and would appreciate any guidance.

Client did not fully fund the plan in 1997, 1998 and 1999. A 5500 for 1999 was not filed. A 5500 for 1998 was prepared after IRS inquiry (5500 noted the funding deficiency). Client says a 1997 5500 was prepared, but cannot produce a copy.

Any suggestions? (Besides running far, far away, very quickly-we've fired this client once already).

Thank you.

[Guest JBeck]

In determining what to do, don't fall for the trap that this problem can be easily and not very costly be corrected by one of the IRS' remedial programs. You have minimum funding deficiencies and the IRS will not waive the penalties on such deficiencies, and the calculation of the penalties are cumulative each year.

[david rigby]

Good point.

Funding deficiencies carry two penalties (at least).

The first is 10%, which is due immediately upon the occurrence of the deficiency. This penalty is statutory and the IRS has stated that they have no authority to waive it.

The second is 100% and is due (about) 12 months later if the deficiency has not been corrected. The IRS does have some flexibility in whether this penalty can be waived or reduced. The plan sponsor will need lots of good documentation about why contributions were not made.

As in so many situations, the first advice is to use a competent ERISA attorney.

[richard]

And why did you fire them the first time?

And why did you take them back?