Late deferral deposits and earnings calculation

We have 2 clients in this situation both changed payroll companies in 2024.  

With the small client 10 participants, I can probably get actual earnings for the multi-month period and reduce by 50% (since funds would have been deposited evenly pro-rata over the period.

Then there is the large client 150 to 200. Getting actual earnings for the late period is not possible.  I know some will say you cannot use the DOL calculator unless you file with the IRS. I see no other practical option.

I don't why this has to fall on the TPA to fix when it is the payroll company responsibility and plan sponsor to monitor.  I told the small plan sponsor - what do your corporate accounting records who - there should be a 401(k) liability - withholding less payments to the plan. Accounting probably not kept current. (I know whining doesn't help.)

Thank you,

Tom

Why not use the highest performing fund for the large fund?

Sometimes whining does help.....lol.

Considering Tom’s observation about who gets stuck with the work when an employer fails to pay over contributions promptly, here’s what I wonder:

Does a recordkeeper or third-party administrator treat its work on correcting late contributions as an included service within the regular fee?

Or does one charge, distinctly, a time-based fee, or a fixed fee quoted for the task, for one’s work on these corrections?

(I don’t ask the amount of any fee. To protect the Bakers’ hosting of this website, we should avoid discussions of price information. We ask only whether there is a distinct fee.)

Peter.... I know of fee agreements that say that contribution corrections/earnings corrections are minimum $100 and $100 hour there after.

I'd bet most TPAs or Recordkeepers have the provision to charge for these services.

Our service agreement lists pricing for each specific service listed in our menu of available services.  For example, one service is posting payrolls and instructions to the custodian on where to invest the payrolls.  This service is predicated on receiving timely and correct data and related funding.  Any service that is not explicitly listed, and any variance from the conditions applicable to a listed service, are considered special services and billable at the hourly rates of the staff who perform the special services.

Yes, if the time involved is inconsequential, we alert the client we provided a special service but may waive the fee.  If client does not take steps to ensure that we get what we need to perform our listed services timely and accurately, we do invoice the client for the extraordinary efforts. 

It's amazing how often it takes a small charge appearing on an invoice is needed to motivate the client to act within the scope of the services agreement.

Why are they filing with the IRS? It seems like you can look at all of the investment in the plan, then use the investment with highest earnings for the period.  Regardless, if it is absolutely impossible to get any plan related earnings percentage, use the DOL's voluntary fiduciary correction calculator.  It has been a long time, but I used it in a VCP filing.

6 hours ago, Tom said:

I know some will say you cannot use the DOL calculator unless you file with the IRS. I see no other practical option.

The DOL says you cannot use the calculator unless you file VFCP (DOL not IRS).  

Several of the recordkeepers we work with have the availability to calculate the actual earning from posting date the contributions should have been deposited to provide actual earning as if they were invested on time to make the participants whole.  The resulting gain/loss can be billed to the plan sponsor.

I have several times had clients use a recordkeeper’s software routine of the kind FishOn describes. It works from each investment alternative’s share or unit price on the should-have date and on the correction date. I’ve never seen even a moment of difficulty with such a routine.

RatherBeGolfing, The VFCP is a DOL program. the VCP is the IRS program.

3 hours ago, Chris F said:

RatherBeGolfing, The VFCP is a DOL program. the VCP is the IRS program.

Im aware, I was pointing out that the DOLs position is that you have to file with DOL, not IRS, if you want to use the calculator.   The OP stated " I know some will say you cannot use the DOL calculator unless you file with the IRS", which is incorrect. 

On 9/19/2024 at 3:29 PM, RatherBeGolfing said:

The DOL says you cannot use the calculator unless you file VFCP (DOL not IRS).  

May seem like a dumb question, but I'll risk it.  Do you have a specific reference for this?  Where in the DOL VFCP does it state that the DOL calculator can only be used to calculate the lost earnings under VFCP.  This is a rule I've always followed but I am having a hard time pointing to the reference under VFCP. 

EBSA’s Voluntary Fiduciary Correction Program states conditions under which one may obtain a no-action letter (or get an email recognizing a self-correction-component notice).

That restrains only the Secretary of Labor from pursuing enforcement or civil penalties on the identified and corrected breach.

Likewise, Prohibited Transaction Exemption 2002-51 restrains only the Treasury’s enforcement for some excise taxes.

https://www.govinfo.gov/content/pkg/FR-2006-04-19/pdf/06-3674.pdf

Outside those regimes, one might use EBSA’s calculator, but gets no reliance; one gets neither government agency’s assurance about what effect paying restoration in an amount estimated using the calculator might have.

Further, about a claim of a person other than the government agencies (including a participant’s or beneficiary’s claim), the burden is on the fiduciary to show or prove that a correction was enough so that there no longer is any loss to the plan resulting from a breach nor any profit the fiduciary made through a use of the plan’s assets (including a contribution that became a plan’s asset but was not promptly paid into the plan’s trust).

The online calculator’s result might not be enough restoration.

Or an aggregate amount for the plan might be enough, but the allocation among participants’ and beneficiaries’ accounts might be insufficient.

This is not advice to anyone.