Plan's a mess...Late Deposits, 5500, 5330, DOL Audit

Non-safe harbor 401k plan (discretionary match) for non-profit is under DOL investigation because of a whistleblower report to DOL.   Deservedly so, they have late deposits going back to 2017.  They didn't have a TPA after the intial 2017 plan year.  Hard to believe, but it was unbeknownst to the board members - lots of turnover in board members and bookkeepers.  In any event, the employer is very cooperative and the DOL has been great to work with (so far).  I'm reporting the late deposits to the DOL and the investigator is going to calculate the lost earnings.  Facts:

• I filed the 2017, 2018, 2019 & 2020 with the DFVC program.  2021 and 2022 filed on time. Each year the form said that the employer did NOT fail to transmit participant contributions.  At the time, they thought only matching contributions were late.  Once full records were found (in a box in storage), we found that there were late employee contribution deposits.
• Now we know that every year from 2017-2022 has late employee deposits and never filed a 5330.
• DOL is going to calculate lost earnings after I report the amounts and pay periods to him  The DOL investigator said the match is discretionary and that late or non existent matching contributions for a pay period are not an operational failure as long as each employee's match in that particular payroll is using the same formula. I'll have to true up the match for a few of the payrolls.

QUESTIONS:

• Do they need to go through VCP with the IRS?  T Are late deposits a reason to do VCP?
• After the first TPA disappeared in 2018, they didn't have a document in place until i drafted one in July 2022.  Is that a VCP issue?
• Should I amend the 5500s to say there were late employer contribution deposits in each of those years?
• Form 5330 - I assume I need to file 5330s for those years.  I see there's possibly an additional 5% penalty for failing to file.  My problem is in looking at the 5330 I don't see that there's a category for failure to file for a LONG time.  The Sections all seem to refer to 'tax that is reported by the last day of the X month following Y year..."etc.  My situation doesn't seem to fit the categories.  What do I file?

I need lots of advice here.  This is the first time I've ever encountered a cluster like this.

Thank you for your help!

Given the number of years and the number of participants affected by the failures, you should file a VCP.  There are operational and document failures.  After a closer look, you may find demographic failures, too.  The DOL alone cannot address this range of issues including the document issues.

The reporting of late deposits on 5500s is cumulative which means you add each year's late deposits to this year's late deposits and report them until they are fully corrected.

Similarly, the 5330s are cumulative with each year added to the next year's 5330 until all the taxes are paid.  Essentially, you pay each year's tax over and over again until there are no more late deposits associated with that year.

Filing amended 5500s once this is cleaned up is a good idea to formally set the record straight.  The 5500s are used by the agencies to identify plans with deficiencies so not amending them is inviting future agency reviews, audit or investigations.  The amended returns supersede that prior filings.

Note that when the plan files the VCP, the expectation is that the VCP will cover all deficiencies.  Take time to look at employee census data for each year.  You may find failures to implement deferral elections, missed deferral opportunities, ineligibles getting contributions, eligibles not getting contributions, unpaid benefits, unpaid RMDs, and more.  The process not only will involve fixing participant accounts but will also communicating to the plan sponsor and to participants what is happening inside the plan.

Be sure to prepare a service agreement documenting your fees to do this work, and include provisions for progress billing throughout the engagement.  Plan remediation over a long period of time compounds the effort needed to get a plan in compliance.

22 hours ago, Paul I said:

Given the number of years and the number of participants affected by the failures, you should file a VCP.  There are operational and document failures.  After a closer look, you may find demographic failures, too.  The DOL alone cannot address this range of issues including the document issues.

The reporting of late deposits on 5500s is cumulative which means you add each year's late deposits to this year's late deposits and report them until they are fully corrected.

Similarly, the 5330s are cumulative with each year added to the next year's 5330 until all the taxes are paid.  Essentially, you pay each year's tax over and over again until there are no more late deposits associated with that year.

Filing amended 5500s once this is cleaned up is a good idea to formally set the record straight.  The 5500s are used by the agencies to identify plans with deficiencies so not amending them is inviting future agency reviews, audit or investigations.  The amended returns supersede that prior filings.

Note that when the plan files the VCP, the expectation is that the VCP will cover all deficiencies.  Take time to look at employee census data for each year.  You may find failures to implement deferral elections, missed deferral opportunities, ineligibles getting contributions, eligibles not getting contributions, unpaid benefits, unpaid RMDs, and more.  The process not only will involve fixing participant accounts but will also communicating to the plan sponsor and to participants what is happening inside the plan.

Be sure to prepare a service agreement documenting your fees to do this work, and include provisions for progress billing throughout the engagement.  Plan remediation over a long period of time compounds the effort needed to get a plan in compliance.

Thank you!  

We need a "go directly to ERISA Attorney, do not pass go, do not collect $200" card for these situations...