DOL Calculator Issue

Unbelievable.  I created a Lost interest calculator to mimic the DOL site, but that just has a lot more functionality.  So I have built in a way to validate the new interest rates that I enter. Welll, long story short I could not validate this quarter.  In the end I figured out that it was the DOL site that was wrong....

Take a look at the attached as proof.  The trick is to run an interest calc from 1/1/2018 until April 15th, and then 1/1/18 through March 31st.  Same result!!

Uh, I didn't think it ever worked with future dates.

Sure you can.  Clients certainly cannot fund the lost interest on the very day it is caclulated.  I always go out at least a week if not more.

Perhaps there is a limit to the extent that future works?  Maybe a monthly rate published around the first of the month allowing that rate to work for anything projected to the end of the month?

There is an outer limit, I forget what it is, but it's more than 2 weeks.  And certainly more than 1 week, which is the case here.

And anyway it tells you if entered a date that is too far out in the future, and no such warning appeared here.

PS the interest rates were released 3/7/2018.

I think it is 30 days.

We are only allowed to use the DOL calculator if the plan goes through VFCP. Is that how other TPAs function? 

I use it all the time, VFCP or not.  I only do VFCP in really significant situations. 

What Austin said - same for us. Doing a VFCP for a situation where there is 9 dollars of lost interest seems like overkill...

But, your way is certainly safe - can't get into trouble that way.

We use it most of the time, even if we don't do VFCP.  It is a calculated risk scenario.  If you use the calculator but don't file VFCP, you run the risk of the DOL "disallowing" the correction if they ever look at it.  For small corrections, the DOL will most likely not care (although they are getting really picky in some regions), and even if they do the cost of re-doing it will be fairly small.  

What's also interesting to me is the EPCRS (Rev Proc 2016-51) in Section 6.02(5)(a) under "Reasonable Estimates" says...

**********

For this purpose, the interest rate used by the Department of Labor’s Voluntary Fiduciary Correction Program Online Calculator (“VFCP Online Calculator”) is deemed to be a reasonable interest rate. The VFCP Online Calculator can be found on the internet at http://www.dol.gov/ebsa/calculator.

**********

So the IRS thinks the online calculator is "sufficient"...

An additional preceding portion of Rev Proc 2016-51, Section 6.02(5)(a) says . . . "if . . .it is not possible to make a precise calculation  . . . reasonable estimates may be used in calculating appropriate correction.  If it it is not reasonable to make a reasonable estimate of what the actual investment results would have been, a reasonable interest rate may be used.  For this purpose the interest rate used by the Department of Labor's Voluntary Fiduciary Correction program Online Calculator  . . . is deemed to be a reasonable interest rate".

When the client isn't filing a VFCP application, we've been able to look at the overall rate of return for the plan (either on a quarterly or annual basis) & have used this rate of return for a "reasonable estimate of what actual investment results would have been" (which has been higher than the DOL Calculator in the last few years). 

Does anyone else follow this methodology?

When it is a "simple" matter to look at the overall rate of return for the plan, we've done this.  But with all of the funds usually involved, this is not "simple" enough for us... so we just use the DOL Online Calculator.

We never use the DOL Calculator unless filing through VFCP.

3 hours ago, msmith said:

We never use the DOL Calculator unless filing through VFCP.

TPA?

Just curious as most TPAs I know pretty much always use the calculator, while all the atty's I know never use the calculator unless VFCP (and they almost always file VFCP).

If not submitting a VFCP app, are you still listing the late deposit amount on the 5500?  And if so, is there an amount that, if less than, typically does not trigger the DOL follow up letter re the program?

Thanks.

10 hours ago, Gilmore said:

If not submitting a VFCP app, are you still listing the late deposit amount on the 5500? 

Yes.  You don't get a pass on the Form 5500 compliance questions just because you don't file VFCP.

10 hours ago, Gilmore said:

And if so, is there an amount that, if less than, typically does not trigger the DOL follow up letter re the program?

The only magic number that makes you less likely to have the DOL take an extra look is $0. However, some regional offices are more likely to take an extra look and send a love letter if they see late deferrals on the 5500 with no VFCP.  I have heard that Philly, Kansas City, and San Fran are the regions that are the most likely to follow up.

So then the client is advised that self correcting, and listing the late deposit on the 5500 could result in a follow up from the DOL, regarding their "voluntary" correction program?

Just curious.  When we present that to our clients, most have opted to file the application, but it sounds like from above that others are able to self correct without further action? 

I certainly wouldn't mind doing fewer VFCP filings.

24 minutes ago, Gilmore said:

So then the client is advised that self correcting, and listing the late deposit on the 5500 could result in a follow up from the DOL, regarding their "voluntary" correction program?

Whether you correct or not, you still have the list the transaction on the 5500.  It is not filing VFCP that prompts the letter from DOL, not the fact that you accurately prepared the 5500.

VFCP is "voluntary" because you voluntarily bring the item for correction without them findingand making you correct.  Voluntary does not mean that the correction itself is discretionary.

If a client refuses to sign a return because it is accurately prepared and brings the clients misdeeds to light, I drop the client.  Never make their problems your problems.

I am a TPA. Can someone point out where it states you can use the DOL Calculator if you are not filing through VFCP? Various webinars we have listened to have stated that if you are not filing an application through VFCP, you must use the earning rate (if higher) and not the DOL Calculator.

I get that their problem is not our problem, but I do feel that it is our job to let the client know the consequences of the choice that they make, for example, not filing vs filing when there are late deposits.  Not trying to be argumentative, I was just attempting to learn the experience of the other responding TPAs as to the frequency of a follow up from DOL when VFCP has not been filed.

We may be overly conservative when advising our clients.  However, I'm also in agreement with Smith, that we don't use the calculator unless the client files under VFCP.

3 minutes ago, Gilmore said:

I get that their problem is not our problem, but I do feel that it is our job to let the client know the consequences of the choice that they make, for example, not filing vs filing when there are late deposits.  Not trying to be argumentative, I was just attempting to learn the experience of the other responding TPAs as to the frequency of a follow up from DOL when VFCP has not been filed.

We may be overly conservative when advising our clients.  However, I'm also in agreement with Smith, that we don't use the calculator unless the client files under VFCP.

 

Oh I actually agree with you, it is absolutely our job to let the clients know what the consequences are, just like it is also our job to sometimes draw a line in the sand.  My point was more that if a client does not want to file VFCP, you cant really force them to but you have to tell them what the consequences are (especially if you are also governed by Circular 230).  The 5500 is a different matter altogether, because most of us actually prepare the form for the client, so preparing and helping a client file a form that does not answer the compliance questions truthfully impacts the professional just as much as it impacts the client.  I can live with a client that is willing to play the audit lottery and not file VFCP, but I will not help a client conceal compliance issues on the annual return. That was all I meant by do not make the clients problems your problems.

As for the frequency of follow ups, they follow up on both small and large amounts so there is no "less than X and your safe or more than Y and you will get a letter".  What does matter a great deal is the region.

Thanks Golf.  I believe we are completely on the same page.  Appreciate the dialogue.

6 hours ago, msmith said:

I am a TPA. Can someone point out where it states you can use the DOL Calculator if you are not filing through VFCP? Various webinars we have listened to have stated that if you are not filing an application through VFCP, you must use the earning rate (if higher) and not the DOL Calculator.

Of course we all know that the rule is you cannot use it unless you use the VFCP program.  But as is clear from these discussions, everyone does it anyway, and to no negative consequence I might add.  Client missed a deposit and sends it in a few weeks late?  I just bang out a quck DOL calc and send them the roster.  My God that happens all the time.  My questions are

a) how do you determine the rate of return?  I thought the alternatives were a) calculate the individuals rate of return (Which, OMG...) or use the best performing fund (which OMG OMG!!!).

b) What are you charging for all of this work on a $125 problem?

With record-kept plans (most often, this is the case), we request the highest rate of return from them. We have created spreadsheets to calculate the lost opportunity interest.

Time & charges is the cost - and hopefully, a detriment for future late returns. We always inform the Client that they must establish a procedure to make sure that recurring late deposits are halted.

Well, if it were me I would have run the report for the date range of the failure period and calculated the actual rate of return for each person. Best performing fund is a windfall for the participants and really punitive to the employer.  I imagine there are some scenarios where there is a bit of sticker shock...

Wild question.  Does anyone have a sample spreadsheet that would calculate the actual earnings (based on plugged data such as plan earnings rates for the different periods, late contribution amounts, etc.) that they could share?  Or, how are most people who are using the self correction method, but, not the DOL calculator handling the actual earnings calculations?