ejohnke Posted June 11, 2024 Posted June 11, 2024 We have a new plan, effective 1/1/24, with deferrals effective 2/1/24. There were SIGNIFICANT delays with the Custodian and deferrals couldn't actually start until 3/22/24. What is the appropriate way to correct this issue?
Lou S. Posted June 11, 2024 Posted June 11, 2024 If deferrals started with payroll but couldn't be deposited because of the custodian, you have late deposits. Simply deposit the payments along with the lost earnings, file the 5330 and decide if you are going to though the DOL late contribution program or not. If the deferrals didn't start you can calculate a QNEC on the missed deferral opportunity and deposit that, but I think you might just be able to self correct and start the deferrals 3/22 as the delay was "short" and folks have 9 months to catch-up the missed deferral opportunity. Bill Presson, justanotheradmin, Luke Bailey and 1 other 4
justanotheradmin Posted June 11, 2024 Posted June 11, 2024 1. were deferrals withheld? but not sent in? in that case you have late deposits. See VFCP, and Form 5330, and look up late deposits to retirement plans 2. were deferrals not withheld? but they should have been? In that case you have a missed opportunity to defer. See EPCRS, if there were deferral elections, or no deferral elections, or match or no match, the actual amount will vary, but it all covered in the IRS's EPCRS rev pro. Note: the custodian not being ready isn't a valid excuse. Plans encounter this all the time, and purposely pick a special deferral start date farther out, that is written into the plan document, for this very reason. The give service providers time to get set-up with all the info from the sponsor. Even in the event of an unexpected delay, there is no reason why the deferrals couldn't have started on time, and the plan open up a temporary account, such as brokerage/checking/savings account etc in the name of the plan into which to deposit the deferrals. Then they would be deposited to the trust on time, and then once the regular custodian is ready, the money can be transferred to there. acm_acm, Bill Presson, Lou S. and 1 other 4 I'm a stranger on the internet. Nothing I write is tax or legal advice. I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?
ejohnke Posted June 12, 2024 Author Posted June 12, 2024 In this case deferrals were not withheld. What happens when we add an auto enrollment layer to this issue? The auto-enrollment wasn't initiated by the custodian until 4/1/24. In order to calculate the 2/1-3/22 MDO, what deferral amount(s) would we use?
Popular Post Paul I Posted June 12, 2024 Popular Post Posted June 12, 2024 Take a look at the rules for correcting missed deferral opportunities for plans with auto-enrollment. They are very generous for the plan, and the IRS admitted the leniency was because the IRS like auto-enrollment. There also is a three-month rule which can reduce the cost of a corrective action. Do keep in mind that if there is a match involved, the missed match plus earnings are more likely to be required. Take care in pointing fingers at any one particular party, and do so only after carefully reading not only the plan documents but also each service agreement with each service provider. Ultimately the responsibility and accountability for the proper operation of the plan falls on the shoulders of the plan fiduciaries. Also document a timeline of events of what should have happened and what did happen, and note any causes of delays. This is invaluable should the plan fiduciaries attempt to recoup anything from any of the service providers. As some have noted above, deferrals are a payroll function which may not have been under the control of the Custodian, and if the Custodian was not in a position to accept the deferrals, there were alternatives available until Custodian fixed its problems. Stick to the facts, take advantage of the breaks available to auto-enrolled plans, and work with the service providers to right the ship. acm_acm, Bill Presson, Lou S. and 2 others 5
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