Contributions to employee benefit plans that are withheld from employee pay must be remitted to the plan as soon as administratively feasible. Generally, the U.S. Department of Labor (DOL) believes that “contributions (other than union dues) withheld from an employee’s wages or paid to the employer by a participant must be sent to the plan on the earliest date these contributions can reasonably be separated from the employer’s general assets…In no event may these contributions be forwarded later than the 15th business day following the month of the withholding.” However, the DOL expects that most employers can forward the contributions long before the maximum time period, and will look at past contribution history and employer practices to determine the appropriate period of time for contribution remittance.
The Voluntary Fiduciary Correction Program (VFCP) was created by the DOL to allow for plan officials to correct certain employee benefit plan fiduciary violations, including delinquent participant contributions. If a plan sponsor follows the applicable steps as required by the VFCP, no self-reported transactions will result in further enforcement action by the DOL.
Even after following the steps as required by the VFCP, plan sponsors must report the delinquent contributions on Schedule H of the applicable plan year Form 5500 filing. With the Form 5500 filing, the plan sponsor must indicate whether the delinquent contributions were:
Corrected outside of the VFCP
Pending correction in the VFCP
Fully corrected under the VFCP and Prohibited Transaction Exemption 2002-51
As a best practice, we have always advised clients with identified delinquent contributions to make the appropriate corrective action, following all required steps under the VFCP. However, this practice is proving to be even more prudent as it appears that beginning in 2018 the Employee Benefit Security Administration (EBSA) of the DOL began sending form letters to plan sponsors who indicated on their 5500 filings that late contributions were corrected outside of the VFCP. The letters threatened “possible alternative enforcement measures” if the plan sponsor did not complete a VFCP application within 60 days of receiving the letter. While organizations such as the American Retirement Association have filed formal comments opposing the EBSA’s recent actions, it is still advisable to make all appropriate corrections through the VFCP to avoid additional potential fines and penalties.
If you think you’ve made delinquent contributions to your benefit plan, or have any plan compliance issues or concerns, please feel free to reach out to our benefit plan experts at Schneider Downs.
You’ve heard our thoughts… We’d like to hear yours
The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].
Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.