VFCP vs. no VFCP

OK, I know this has been asked, but some threads are from 2003 & 2004, so I wanted to ask again.  A client received a DOL letter (out of Philly) last month about the late deferrals reported on their 2018 5500.  This client had already contributed lost earnings to participants and filed Form 5330 with the excise tax payment.  The letter says "It is important to note that some plan sponsors who make late remittances of participant contributions decide merely to calculate lost earnings using the VFC calculator, and deposit that amount into the plan, but do not file a VFCP application. This informal process is not the same as filing a VFCP application, and does not protect a plan sponsor from potential audit by EBSA."

In the last month, I went ahead and filed the VFCP application on behalf of the plan sponsor because I don't know if they would otherwise be targeted for an audit.

Questions:

1) If it will be time consuming and costly (to the plan sponsor) to determine actual earnings for each affected participant and payroll, are you using the DOL calculator even when not filing a VFCP application?  I believe the answer is yes for the majority.

2) What potential penalties could the DOL impose if they audit a plan that has corrected the prohibited transaction by filing the 5330 and paying the excise tax, albeit with earnings determined using the DOL calculator.  I would think none, but maybe they would require the full application?  Either way, no one wants the DOL to audit a Plan and I would like to reduce the probability.

3) Are any of you opting for the VFCP filing for all late deferrals from the get go (before the client receives a DOL letter)?  We give our employers the option, but we charge an hourly rate for this that would always FAR exceed both the lost earnings and the excise tax, so it is cost prohibitive.  Unfortunately, with these DOL letters being sent to plan sponsors, they are getting freaked and we end up doing the filing anyway.

25 minutes ago, 401(k)athryn said:

If it will be time consuming and costly (to the plan sponsor) to determine actual earnings for each affected participant and payroll, are you using the DOL calculator even when not filing a VFCP application?  I believe the answer is yes for the majority.

Most will use the calculator either way.  

27 minutes ago, 401(k)athryn said:

What potential penalties could the DOL impose if they audit a plan that has corrected the prohibited transaction by filing the 5330 and paying the excise tax, albeit with earnings determined using the DOL calculator.  I would think none, but maybe they would require the full application?  

Sure they can.  They DOL does not recognize self correction, so as far as they are concerned you have not actually corrected yet.  

1 hour ago, 401(k)athryn said:

Are any of you opting for the VFCP filing for all late deferrals from the get go (before the client receives a DOL letter)?  We give our employers the option, but we charge an hourly rate for this that would always FAR exceed both the lost earnings and the excise tax, so it is cost prohibitive.  Unfortunately, with these DOL letters being sent to plan sponsors, they are getting freaked and we end up doing the filing anyway.

I always recommend it, but not all clients will opt for it.  As for the cost to fix vs tax and earnings argument, I look at it a little different.  What you are actually correcting is the clients failure to follow the law.  You shouldn't look at it as "it will cost me $500 in consulting fees for a $50 excise tax", instead, its a $550 dollar correction

No, our compliance department does not use the DOL calculator if they are not filing a VFCP application. They are adamant that this should not be done.

Ratherbegolfing - Thank you! 

CEB50 - Your firm is in the minority on this, for sure, but not wrong!