Broker Check


New Year - New Resolutions

Linda R. Visconti, QKA 

res-o-lu-tion

rezəˈlo͞oSH(ə)n

noun

  1. firm decision to do or not do something
  2. the action of solving a problem, dispute or contentious matter

               

By now you have made (or even broken) a resolution or two. I will eat better (right after I finish these Christmas cookies), or I will exercise more (as we all settle in on the couch for a Netflix marathon). As a Plan Sponsor there are many activities on your plate, and at times, one or two may slip through the cracks. With all the plan provisions, regulations and laws surrounding retirement plans, it can be a daunting task to keep up with everything. At Tycor, we try to keep you ahead of any changes and help to avoid pitfalls.

As busy as you get in your business, you could never escape or even delay, pay day if you have employees. Oh sure, there are some employers who might. But let’s be honest; how long could you expect someone to work for free? We’ve all got bills to pay! The government takes a similar view – if you have run payroll and given out those pay checks, you had better submit those payroll taxes in a timely manner. Thankfully, many payroll services take the guess work out of this task by automating your tax payments.

The same is not true for the automation of retirement plan contribution deposits in most small plan markets. Those funds sit in your account until you forward them to the recordkeeper to deposit into each participant account. There had previously been the suggestion of timeliness being ‘no later than the 15th of the month following the end of the pay period’. This is no longer true. You must segregate and deposit the funds to the participant account within seven days of the pay period; sooner if administratively feasible.

A recent trend we’ve seen from the DOL (Department of Labor) in the Philadelphia market is the number of plans flagged to receive an ‘invitation’ to complete the VFC program (Voluntary Fiduciary Correction) when deposits to the plan are not made timely. You may have made each payroll on time, however, if you go on vacation and don’t remit two weeks until you return, those contributions are late. If you habitually deposit your contributions monthly but pay your staff weekly, then ALL of your contributions are considered late!

While one or two small payrolls that are deposited late might not sound like a big deal – it will be if it is caught in an audit. It’s best to correct upon receipt of the ‘invitation’.

So, what does this Voluntary Correction Program (VCP) entail? Perhaps you are aware you were late, calculated earnings and deposited them. Good for you, but unfortunately, per the IRS, this ‘informal attempt to correct a violation does not constitute a VFC application’. For it to be official, in addition to having the earnings calculated and deposited, you need to file form 5330 and pay the excise tax due. You’ll then need to complete an application (form 8950) and pay a user fee, (form 8951). Effective 1/2/2018, the fee for a VCP submission for a plan with zero to $500,000 in assets is $1,500. If the plan assets are over $500,000 the fee is $3,000. That’s just the fee, and not the additional hourly rate you’ll have to pay for someone to calculate the earnings and complete all these forms. We also recommend that you have form 2848 completed and filed with the IRS which allows an Enrolled Retirement Plan Agent (ERPA, and we have two on staff) to represent you should there be questions on any of the above.

As they say in the commercials – but wait! There’s more!  The IRS isn’t the only entity interested in you making your contributions on time. The Department of Labor (DOL) may also need you to complete a Voluntary Fiduciary Compliance Program (VFCP) checklist and Compliance Statement (form 14568). And the VFCP Model Application Form may have to be completed and filed with the DOL, too.

What’s the big deal? How much can it cost me in lost earnings, excise tax, etc. to fix such a minor error? Turns out – a lot. Even for a small plan, with minimal restitution due to the plan could cost you over $3,000. Our advice is to make a new year resolution to deposit your contributions as part of your overall payroll process. When you cut the checks or transfer the ACH to your employees or the tax authorities, get those contributions posted at the same time. If you stick to this resolution, you may not see a difference in your waist line, but it will sure make a difference to the bottom line if you can avoid all these fees and charges for late contributions.

Got questions? Give us a call!