Delinquent Contributions caused by payroll company

it's been determined that a plan sponsor for a large plan did everything right with their payroll uploads, but the payroll company caused a delay in depositing the 401k contributions.

plan sponsor has since deposited lost earnings and then reported this on multiple 5500's, only now being advised to file a VFCP. No 5330 ever filed though.

The delinquent contribution amounts are not de minimis, even by potential revised vfcp standards, though lost earnings are under $5k.

Based on this error, and I know it's often a judgement call, would it be fair to amend the 5500's to remove the delinquent contributions and not go through the effort and cost of a vfcp?

Well the V stands for Voluntary so you don't have to, but if you get the invite from the DOL and don't take advantage of the program, you do have a higher risk of DOL Audit, or so I've been led to believe from other threads on Benefitslink.

But it sounds like you have properly reported late contributions, so I'm not sure under what theory you would file amended returns to remove them from the filings.

Frankly, in this scenario, I would recommend the client do the VFCP and the payroll company pay the costs. 

16 hours ago, TPApril said:

would it be fair to amend the 5500's to remove the delinquent contributions and not go through the effort and cost of a vfcp?

Curious why how this is a possible resolution. The contributions were late, regardless of who was at fault. Assume the worst - amending the 5500 flags the plan for an IRS audit. The IRS auditors find that the original 5500 was correct (with late contributions) and the amended 5500 was incorrect. It would appear that the Sponsor were trying to hide the late contributions. 

VFCP is a hassle, but not nearly comparable to a Plan audit. 

The Form 5500 Instructions tell a plan’s administrator to report a late contribution until the first plan-accounting year that begins “after the violation has been fully corrected by payment of the late contributions and reimbursement of the plan for lost earnings or profits.”

The Instructions call for reporting even if the late contribution and the correction happen in the same plan year.

I'm a former EBSA supervisor. Based on my experience, DOL would typically view the contributions as late regardless of the reason, if they are truly late. Keep in mind that what you think is late might differ than what DOL determines is late (DOL is probably a shorter time).

Also, plan fiduciaries have a duty to monitor and collect delinquent contributions regardless of the reason for the delay.

If I were in a DOL regional office targeting plans for potential fiduciary investigations, a plan that amended their 5500 to erase delinquent contributions would raise my interest level much more than a plan that reported them.

Based on what you said--not giving legal advice here--I echo other commenters' suggestions to correct through VFCP.