"Plan sponsor has late deposit of deferrals over several pay periods over period of 4 years. Deferrrals were only late by a few days (but technically outside the timing the employer generally could make the deposits). However, lost earnings were not deposited until September 2026 for all payrolls (some going back to 2022). In calculating the excise tax we looked at the example in Rev. Rul. 2006-38 which references the date the employer 'corrected the failure' but does not indicate whether this was when the deferrals were deposited or when the lost earnings under VFCP were deposited. If we use the deferral deposit date, the excise tax is minimal. If we use the lost earnings deposit date the excise tax is dramatically higher (several thousands of dollars). We were under the impression that the 'correction date' is the date the prohibited transaction is fully corrected -- meaning both deposit of the deferrals AND the deposit of lost earnings -- to put the plan in the position it would have been in had no error occurred. But we are now getting advice that we should use the deferral deposit date and not the lost earnings deposit date. Does anyone have a cite to any IRS guidance, etc. on this? Obviously, which route we choose will have a financial impact.

"We are filing a VFCP application and providing notice to participants in an effort to have the excise tax waived. However, we would like to know what our exposure is if the waiver is not granted."