Reporting Late Deferrals
Rev. 03/19/10; E-mail Alert 2010-5

The DOL has stated that the overwhelming number of Voluntary Fiduciary Compliance Program (VFCP) filings received are for late deposit of elective deferrals and loan repayments. Hopefully, in a future VFCP program update, there will be criteria permitting self-correction method for late deferrals and/or loan repayments. The recently finalized rules for the 7-day safe harbor for late deposit of deferrals/loan repayments for small plans will perhaps simplify somewhat. Note that if a small plan misses the safe harbor, the interest and penalties are to be calculated from the benchmarked deposit date (usually 3 to 5 business days) and not from the end of the 7-day safe harbor.

For a number of years, the Form 5500 has had a question requiring the plan sponsor to disclose if there have been any deferrals deposited late during the year. With the 2009 Form 5500, this question has been expanded to include whether a late deposit has been corrected. This is a welcome change as the plan sponsor can indicate that the plan has been made whole.

This should mitigate the scenario where the plan sponsor — who had reported being late and also had made the correction — received a letter from the IRS and/or the DOL about the need to make a correction. Below are the instructions from the 2009 Form 5500 for the reporting of a late deposit of deferrals with the new option to report that this has been corrected. A quick view of the expanded new section is provided next.

"Line 4a Schedule.   Attach a Schedule of Delinquent Participant Contributions using the format below if you entered “Yes.” If you chose to include participant loan repayments on line 4a, you must apply the same supplemental schedule and IQPA disclosure requirements to the loan repayments as applied to delinquent transmittals of participant contributions."

Schedule H Line 4a — Schedule of Delinquent Participant Contributions

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From the 2009 Form 5500 Instructions, Pages 33-34 Schedule H
Note: Plans completing Schedule I have similar instructions on Pages 40-41

Lines 4a through 4n.   Plans completing Schedule H must answer all these lines either "Yes" or "No." Do not leave any answer blank, unless otherwise directed. For lines 4a through 4h and line 4l, if the answer is “Yes,” an amount must be entered.

Report investments in CCTs, PSAs, MTIAs, and 103-12 IEs, but not the investments made by these entities. Plans with all of their funds held in a master trust should check "No" on line 4b, 4c, 4i, and 4j. CCTs and PSAs do not complete Part IV. MTIAs, 103-12 IEs, and GIAs do not complete lines 4a, 4e, 4f, 4g, 4h, 4k, 4m, or 4n. 103-12 IEs also do not complete line 4j and 4l. MTIAs also do not complete line 4l.

Line 4a.    Amounts paid by a participant or beneficiary to an employer and/or withheld by an employer for contribution to the plan are participant contributions that become plan assets as of the earliest date on which such contributions can reasonably be segregated from the employer's general assets (see 29 CFR 2510.3-102). Plans that check “Yes” must enter the aggregate amount of all late contributions for the year. The total amount of the delinquent contributions should be included on line 4a of the Schedule H or I, as applicable, for the year in which the contributions were delinquent and should be carried over and reported again on line 4a of the Schedule H or I, as applicable, for each subsequent year until the year after the violation has been fully corrected, which correction includes payment of the late contributions and reimbursement of the plan for lost earnings or profits. If no participant contributions were received or withheld by the employer during the plan year, answer "No."

An employer holding these assets after that date commingled with its general assets will have engaged in a prohibited use of plan assets (see ERISA section 406). If such a nonexempt prohibited transaction occurred with respect to a disqualified person (see Code section 4975(e)(2)), file IRS Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, with the IRS to pay any applicable excise tax on the transaction.

Participant loan repayments paid to and/or withheld by an employer for purposes of transmittal to the plan that were not transmitted to the plan in a timely fashion must be reported either on line 4a in accordance with the reporting requirements that apply to delinquent participant contributions or on line 4d. See Advisory Opinion 2002-02A, available at www.dol.gov/ebsa.

Delinquent participant contributions reported on line 4a should be treated as part of the separate schedules referenced in ERISA section 103(a)(3)(A) and 29 CFR 2520.103-1(b) and 2520.103-2(b) for purposes of preparing the IQPA's opinion described on line 3 even though they are no longer required to be listed on Part III of the Schedule G. If the information contained on line 4a is not presented in accordance with regulatory requirements, i.e., when the IQPA concludes that the scheduled information required by line 4a does not contain all the required information or contains information that is inaccurate or is inconsistent with the plan's financial statements, the IQPA report must make the appropriate disclosures in accordance with generally accepted auditing standards. For more information, see EBSA's Frequently Asked Questions About Reporting Delinquent Contributions on the Form 5500, available on the Internet at www.dol.gov/ebsa. These Frequently Asked Questions clarify that plans have an obligation to include delinquent participant contributions on their financial statements and supplemental schedules and that the IQPA's report covers such delinquent contributions even though they are not required to be included on Part III of the Schedule G. Although all delinquent participant contributions must be reported on line 4a, delinquent contributions for which the DOL VFCP requirements and the conditions of PTE 2002-51 have been satisfied do not need to be treated as nonexempt party-in-interest transactions.

The VFCP describes how to apply, the specific transactions covered (which transactions include delinquent participant contributions to pension and welfare plans), and acceptable methods for correcting violations. In addition, applicants that satisfy both the VFCP requirements and the conditions of PTE 2002-51 are eligible for immediate relief from payment of certain prohibited transaction excise taxes for certain corrected transactions, and are also relieved from the obligation to file the IRS Form 5330 with the IRS. For more information, see 71 Fed. Reg. 20261 (Apr. 19, 2006) and 71 Fed. Reg. 20135 (Apr. 19, 2006). Information about the VFCP is also available on the Internet at www.dol.gov/ebsa.

All delinquent participant contributions must be reported on line 4a even if violations have been corrected.

Line 4a Schedule.   Attach a Schedule of Delinquent Participant Contributions using the format below if you entered “Yes.” If you chose to include participant loan repayments on line 4a, you must apply the same supplemental schedule and IQPA disclosure requirements to the loan repayments as applied to delinquent transmittals of participant contributions.
Schedule H Line 4a — Schedule of Delinquent Participant Contributions