DOL Automatically Generated Letter – Late Deposit of Elective Deferrals

DOL Correspondence on Late Deposit of Elective Deferrals discusses how the DOL has been automatically generating letters to plan sponsors who indicate on the IRS Form 5500 that they failed to deposit deferrals in the required time period, even if the sponsor included an attachment that indicated it had been corrected. The article still recommends the use of the attachment or footnote:

"Despite the fact that the attachment is optional for a Schedule I and despite the fact that the DOL apparently does not review the schedule or the attachment before sending the letter, we continue to encourage the use of the attachment (or a footnote describing the correction) to forestall a potential DOL investigation. Since the DOL generally reviews the Form 5500 before commencing an investigation, we believe the attachment describing the correction will influence the DOL to focus on plans where Form 5500 does not disclose whether a correction has occurred."

The automatically generated letter contains a reference to the Voluntary Fiduciary Correction Program (VFCP), a program that "encourages voluntary compliance by self-correcting violations of the law. The program also helps plan officials understand the law and gives immediate relief from payment of excise taxes under a class exemption." The article addresses the implication that the sponsor will be subject to a DOL audit if they do not utilize the VFCP:

"Although a plan sponsor always should consider VFCP, the plan sponsor should not feel unnecessarily pressured into filing under the program. A plan sponsor should weigh the benefits of the program (elimination of the prohibited transaction excise tax) against the costs of filing under the program (cost of hiring an attorney to file). Many small and medium sized plan sponsors will conclude the costs of the program outweigh its benefit. Since the prohibited transaction excise tax usually is negligible, these plan sponsors generally prefer to self-correct and pay the excise tax."

The article concludes by recommending that the sponsor should respond to the DOL and advise that they have corrected using the VFCP methodology and paid the excise tax:

"In every situation of which we are aware, once the DOL receives information that the late deposit has been corrected, it does not pursue the matter further."