Late contributions to 401k. Use DOL calculator for all contribution types?

Employer was 20 days late with employee deferrals, matching, and non-elective QACA contributions. Prior to this error they have always submitted the three money types together to participant accounts every pay period.

For the missed contributions do they need to use the VFCP lost earnings calculator for all three money types or just for the employee deferrals?   

Match and nonelective weren't late, unless there's an operational error based on text in the plan document requiring those deposits to be made immediately.

Check out this link:  https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-you-have-not-timely-deposited-employee-elective-deferrals

You may not be late unless your plan indicates something else.  "Department of Labor rules require that the employer deposit deferrals to the trust as soon as the employer can; however, in no event can the deposit be later than the 15th business day of the following month. Remember that the rules about the 15th business day isn't a safe harbor for depositing deferrals; rather, that these rules set the maximum deadline. DOL provides a 7-business-day safe harbor rule for employee contributions to plans with fewer than 100 participants."

So...for the first time, a small plan has deposited contributions late (as discovered in process of preparing for prior year's 5500).

• 401(k) Amount = $500.
• Days late (after 7-day safe harbor) = 2
• Lost earnings per VCP Calculator = $0.65

Report on 5500? (Late is late)

Pay $0.75 to the trust?

12 hours ago, TPApril said:

So...for the first time, a small plan has deposited contributions late (as discovered in process of preparing for prior year's 5500).

• 401(k) Amount = $500.
• Days late (after 7-day safe harbor) = 2
• Lost earnings per VCP Calculator = $0.65

Report on 5500? (Late is late)

Pay $0.75 to the trust?

Did you mean $0.65?  The $0.65 needs to be added to the affected participants' accounts.  I would not file a 5330 for 6.5 cents (10% of the interest).

Just a note, our compliance department does not use the VFCP calculator unless the client wishes to correct under VFCP.

CEB50 - how do you calculate lost earnings then?

BG5150 - I recall an approach to calculate equivalent of 15% excise tax for first year and deposit it on top of the lost earnings

Is the Excise tax 15%?  I always forget which ones are 10 and which are 15.

I believe the only time you are really allowed to take the penalty tax and apply it to the accounts is if you are applying under VFCP.  Something so small, sure.  Add it.

15% for prohibited transactions. 10% for late ADP refunds, minimum funding deficiency, non-deductible contributions, maybe some others.

The only time I think that you can deposit the excise tax to the plan instead of paying it to the IRS is if you are using PTE 2002-51.

1 hour ago, TPApril said:

CEB50 - how do you calculate lost earnings then?

BG5150 - I recall an approach to calculate equivalent of 15% excise tax for first year and deposit it on top of the lost earnings

Our compliance department uses a formula using plan level amounts/contributions/etc.

I was never a big fan of using the DOL calculator.  However, it's been entrenched in every ecosystem I've worked in.  

Never heard of either service not taking the results, though.  Any stories to the contrary?  

4 hours ago, BG5150 said:

I was never a big fan of using the DOL calculator.  However, it's been entrenched in every ecosystem I've worked in.  

Never heard of either service not taking the results, though.  Any stories to the contrary?  

The calculator can only be used if the plan sponsor is filing through VFCP.  I have seen the DOL require additional lost earnings  when the calculator was used but the plan sponsor didn't  utilize VFCP.

Plan sponsor submitted  contributions late.  Plan sponsor  indicated that they would file through  VFCP.  Lost earnings were calculated  and submitted  based on the calculator.  Plan sponsor didn't  end up filing through  VFCP.  A year or two later the DOL audited the plan and required that the plan sponsor  submit an additional  $20,000 in lost earnings. 

Where does one indicate that they want to file through VFCP?

There's no "indication" - you just apply. This should get you started. https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/correction-programs/vfcp/model-application-form

This link gets you to more of the nuts and bolts. https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/correction-programs

On 7/9/2019 at 4:09 PM, R. Butler said:

The calculator can only be used if the plan sponsor is filing through VFCP.  I have seen the DOL require additional lost earnings  when the calculator was used but the plan sponsor didn't  utilize VFCP.

Plan sponsor submitted  contributions late.  Plan sponsor  indicated that they would file through  VFCP.  Lost earnings were calculated  and submitted  based on the calculator.  Plan sponsor didn't  end up filing through  VFCP.  A year or two later the DOL audited the plan and required that the plan sponsor  submit an additional  $20,000 in lost earnings. 

Curious... how much was lost earnings based on the calculator...

About $400.

This was 5 or 6 years ago.  If I recall correctly employer had weekly payrolls, but were only remitting monthly.  This went on for 2-3 years before they were convinced to remit each payroll.

We begged them to just make the filing, but they just kept putting it off for some reason and it bit them.  Unfortunate because VFCP is really a nice program. 

Was the 20,000 including penalties of some sort?

The calculator back them was about 3% per annum.  If the interest was only $400 on 150 payrolls, that's like $3 each time.  If it was higher than 3%, then each p/r's interest was even less.

How did the DOL get $133 each?

4 hours ago, BG5150 said:

Was the 20,000 including penalties of some sort?

The calculator back them was about 3% per annum.  If the interest was only $400 on 150 payrolls, that's like $3 each time.  If it was higher than 3%, then each p/r's interest was even less.

How did the DOL get $133 each?

And... what triggered the DOL audit?  The Form 5500 question on late deposits?  Or something else... from which the DOL just "happened" to notice this during the audit.  ,<interested to know>

Does an one have first-hand knowledge that there is a significant (or slight) chance that answering the late deposit question on the 5500 will result in an investigation?  

I've been hearing it for years.  We've answered yes to more than a handful, but I've only been part of two DOL investigations in the past 10 years, neither of which involved late deferrals.

9 hours ago, chc93 said:

And... what triggered the DOL audit?  The Form 5500 question on late deposits?  Or something else... from which the DOL just "happened" to notice this during the audit.  ,<interested to know>

I can't remember if the earnings were based on actual rates of return or highest performing fund.

I think a combination of factors triggered.  Certainly the late contributions did not help, but I seem to remember that there was a  balance  discrepancy on a prior 5500; the end of one year was greater  than the beginning of the next year.  I think the  DOL may have sent a simple inquiry that the plan sponsor just ignored.  

9 hours ago, BG5150 said:

Does an one have first-hand knowledge that there is a significant (or slight) chance that answering the late deposit question on the 5500 will result in an investigation?  

I've been hearing it for years.  We've answered yes to more than a handful, but I've only been part of two DOL investigations in the past 10 years, neither of which involved late deferrals.

We've answered yes many times and also  only two DOL audits one of which did not report late in deferrals.  That plan failed to attach an audit to the 5500. During  the audit the DOL deemed a couple  of deposits late during that audit, but nothing big.

Although the DOL doesn't audit much when they do they want your first born child.  They are going to  make the audit worth the government's time.  

I have  seen 60-70 IRS audits and the only one resulted in anything.  We missed a 5330 on an $800 ADP refund.

19 hours ago, BG5150 said:

Does an one have first-hand knowledge that there is a significant (or slight) chance that answering the late deposit question on the 5500 will result in an investigation?  

I've been hearing it for years.  We've answered yes to more than a handful, but I've only been part of two DOL investigations in the past 10 years, neither of which involved late deferrals.

I've done quite a few over the last 10 years and I have not seen a direct link between late contributions on the 5500 and a DOL investigation.  I always recommend VFCP as well, but even the clients that opt against it have been (mostly) investigation free.

That's not to say that it can't lead to an investigation, but I think it's more likely that they look for more than just "[X] yes...".  If there is a pattern, significant amounts, which regional office the client falls under, and even who the service provider is all matters more than an answer on the 5500.

Client has weekly payroll for staff and monthly for execs.  Contributions are direct feed from payroll company, however the client still has to submit by pushing some type of button with the investment vendor to finalize the contribution.  In any event, turns out that was happening only monthly in 2018 and 2019 instead of the staff processing weekly.  

All contributions are in and lost earnings will be calculated and deposited soon.  The amounts are not large but affect ~approx. 3 payrolls out of each month.  Client is under 100 participants.

I assume the client should do the DOL VFCP first and then is it necessary to file the IRS VCP or is SCP ok?