Missed MRC 3 years and did not file the 5500 as well

Hi,

I hope all the sharp minds of this forums can assist with the following:

We rarely deal with this and with all else going on trying to make sure that not missing any steps, etc.

A DB Plan (with employees) did not make the MRC for 3 years and did not file the 5500 as well for these years.

1. Can they/should they first file the 5500 SFs with the DFVCP, even before they have made up the MRC( plus interest) for these 3 years. 

2. If they file the 5500, will this be a flag and alert about the missed MRC and therefore should not file the 5500s until they have the money to make up the MRC?

3. Should the 5330 be filed before the 5550?

4. If the 5500 can be filed first showing the missed MRC for each year, how much time do they then have to file the 5330?

5. How much time do they have, after filing the 5500 with the DFVCP, to make up the missed MRC for the 3 years?

Meaning can they first file all the 5500s (with the SB each year showing the delinquent contributions), to at least get the 5500s back on track, and then deal with making up the missed MRC and with filing the 5330?

Thank you very much as always!

A few general thoughts.  Others opinions will vary.

Form 5500 and Form 5330 are unrelated, each with their own timing requirements and penalties for late/insufficient filing.  Use the Form 5330 when you are paying the excise tax for the missed MRC.  One does not impact the other, but seems reasonable that you would want to clean them both up at the same time, but they are not connected.

1) I don't see any reason to wait.  Penalty for not filing 5500 is a running clock based on days late.  Even if DFVCP significantly limits the penalty, I think it would be best to stop the penalty clock on the late 5500 ASAP.

2) Maybe, but IRS is very understaffed and it might take them a long time to connect the dots.  

3) I don't see any connection.

4) Not connected.  Excise for missed MRC is due on the day it is late and the 5330 is also due on that date.  That doesn't change.  

5) Not connected.  You need to correct the missed MRC ASAP. 

Keep in mind that the excise tax is due each year the payment is late, and the unpaid minimum gets rolled into the next year's MRC, therefore, the excise tax increases in a geometric like progression, compounding into future missed MRCs.  Both the MRC & the excise tax needs to be paid.  You can't reduce or waive benefits to avoid the MRC.  That said, if they haven't done 5500s or made MRCs, you should check if they have certified AFTAPs.  Might be a way to argue accruals were frozen at some point due to AFTAP failures which might lower future MRCs.  Be careful to also check the plan's correction language to see if benefits are automatically restored once the AFTAP is signed. 

Wow, where was the actuary all that time? Or did they not even have one? Here are my general suggestions - not formal advice.

1. Can? Yes. Should? Maybe - the filings must reflect the facts, making up the funding deficiency now doesn't erase it from those prior years.

2. Yes, a funding deficiency for multiple years will certainly draw attention. Waiting to file until they can afford to make up everything? if that's a month or two, maybe that's reasonable. I'm guessing this is a new plan that hasn't filed a 5500 yet or would have expected this to have triggered a notice with that many delinquencies.

3. 5330 has due dates tied to the year of deficiency, so a delay in filing increases interest and penalties as noted above. Again, making up now doesn't change any of this for the past, and kicking the can down the road will serve to increase interest and penalties (and my recollection is that IRS cannot waive interest). 

4. 5330s are late regardless. I would file concurrently with 5500s.

5. Excise tax is 10% on the deficiency each year and can go to 100% if not corrected before IRS sends a notice. I have no idea how quickly that could come. IRS can waive the 100% but not the 10%. See IRC Section 4971. This might be reason enough to correct the deficiency first, especially if this plan isn't in the EFAST system (new/never filed).

You say this is a plan with employees. That brings up a host of other compliance questions - is the plan covered by PBGC and, if so, have those filings and premiums been made? Has an AFTAP been issued for each and every year? Has the Annual Funding Notice been issued? These all carry their own ramifications and turn into Nightmare on Elm Street 3, 4 and 5.

My formal advice: get the actuary, accountant and legal counsel involved ASAP.