DOL Overreach - VFCP! Threatening letters?!

Anyone else find this alarming?! Seriously? 

What if i'm a small plan sponsor and I've done my own lost earnings calc and deposited to the participant accounts, I've done an amount involved calc and filed and paid excise tax with the Form 5330. Seriously, the DOL is going to come after me for also not filing a VFCP?!

ARA article:

https://www.napa-net.org/news/technical-competence/regulatory-agencies/ebsa-threats-of-alternative-enforcement-actions-trigger-ara-response/

Letter from the DOL (see the last paragraph in particular):

https://www.napa-net.org/wp-content/uploads/letter-from-DOL-4.27.2018-002.pdf

ARA letter to DOL:

https://www.napa-net.org/wp-content/uploads/18.06.07DOLEnforcementFinal.pdf

I'm sorry - but they have been sending these letters out for years.  It is "an invitation" to the VFCP program (it is, after all, "voluntary") with a reminder that the only corrective action acceptable to the DOL is through that program.  They actually used to also "invite" you to participate in one of their "fiduciary responsibility" webinars - but the most recent letters I've seen have omitted that invitation.

Bottom line is, for late contributions anyway, go through the program.  It costs nothing.  You need to make the correction anyway (and I assume you have - because the DOL get's the mailing list for these letters from filed Forms 5500 - and if you disclosed there and didn't correct, you're a fool).  And we've found the use of the DOL calculator (only authorized if you use the VFCP program...) often results in lower earnings than other methods.

The ARA is just blowing some smoke here.  Maybe piggybacking on the current sentiment of the mean old overbearing regulatory bodies that currently exists.

This is definitely NOT the same letter. The prior letter was way friendlier and did not require a VFCP submission in 60 days.

Also, it does cost something. For a small employer, it either comes at their own time to figure it out, or they have to hire an attorney, CPA, or TPA to figure it out for them. 

For a small employer the difference between using the actual rate of return and the DOL calculator is small. We routinely see plans with lost earnings to make up of less than $10, but we charge hundreds to do the calculations / 5500/ VFCP etc. using the DOL calculator to save a few cents is not enough incentive. But saving the additional TPA / CPA/ Attorney fee to prepare the forms, plus all the back-up documentation (payroll records, deposit records, etc) can be substantial for a small plan. 

If the plan sponsor has already made the participants whole, plus filed and paid an excise tax, the VFCP should be voluntary, which the ARA has been pushing for. 

The DOL threatening enforcement measures is definitely new. 

11 minutes ago, justanotheradmin said:

Anyone else find this alarming?! Seriously? 

What if i'm a small plan sponsor and I've done my own lost earnings calc and deposited to the participant accounts, I've done an amount involved calc and filed and paid excise tax with the Form 5330. Seriously, the DOL is going to come after me for also not filing a VFCP?!

It started as a Philly project and then spread to other regions.  The wording of the letters vary a bit, but the common thread is that they want you to correct the fiduciary breach, not just correct the earnings.The Chicago letter is a little more aggressive.  Rather than please use the VFCP to correct, this letter says correct or else.

But in the end, can you really complain about the DOL telling you to correct an error you haven't corrected?

Why take this enforcement action now? I suppose that is what I don't understand. 

So if the small plan sponsor doesn't submit a VFCP - and then the DOL does their enforcement measures - what civil penalties would be assessed? 

I've never looked into it because I've never seen civil penalties assessed for late deposits - 

The fiduciary breach in my example has been corrected, the participants have been made whole, new processes or cross-checks in place to prevent reoccurance, etc. Its just that the breach and correction weren't reported to the DOL.

So honest question, in this example what is the civil penalty for failing to use the Voluntary Fiduciary Correction Program? I'm sure someone smarter than me has a citation for it that I can review. 

 " this letter says correct or else."

New way to interpret the "V" in VFCP.  Maybe is should be rebranded the Mandatory Fiduciary Compliance Program. 

Just now, justanotheradmin said:

Why take this enforcement action now? I suppose that is what I don't understand. 

So if the small plan sponsor doesn't submit a VFCP - and then the DOL does their enforcement measures - what civil penalties would be assessed? 

I've never looked into it because I've never seen civil penalties assessed for late deposits - 

The fiduciary breach in my example has been corrected, the participants have been made whole, new processes or cross-checks in place to prevent reoccurance, etc. Its just that the breach and correction weren't reported to the DOL.

So honest question, in this example what is the civil penalty for failing to use the Voluntary Fiduciary Correction Program? I'm sure someone smarter than me has a citation for it that I can review. 

Simple:  An audit.  Using VFCP is far, far, far easier and less time consuming than responding to an audit request.  Then, depending on what they find, all sorts of options for a plan sponsor to write a check (or worse) may happen....

18 minutes ago, justanotheradmin said:

This is definitely NOT the same letter. The prior letter was way friendlier and did not require a VFCP submission in 60 days.

Also, it does cost something. For a small employer, it either comes at their own time to figure it out, or they have to hire an attorney, CPA, or TPA to figure it out for them. 

For a small employer the difference between using the actual rate of return and the DOL calculator is small. We routinely see plans with lost earnings to make up of less than $10, but we charge hundreds to do the calculations / 5500/ VFCP etc. using the DOL calculator to save a few cents is not enough incentive. But saving the additional TPA / CPA/ Attorney fee to prepare the forms, plus all the back-up documentation (payroll records, deposit records, etc) can be substantial for a small plan. 

If the plan sponsor has already made the participants whole, plus filed and paid an excise tax, the VFCP should be voluntary, which the ARA has been pushing for. 

The DOL threatening enforcement measures is definitely new. 

I'm sorry, but IF the employer has corrected the error, then 99% of the work (data collection) has already been done.  Using the VFCP platform is pretty darn easy ONCE the data has been collected.  If you haven't already collected the data, then you probably haven't corrected the problem.

2 minutes ago, MoJo said:

Simple:  An audit.  Using VFCP is far, far, far easier and less time consuming than responding to an audit request.  Then, depending on what they find, all sorts of options for a plan sponsor to write a check (or worse) may happen....

The burden of an audit is a scare tactic. It doesn't answer my questions - why the DOL would want to start this now? I didn't think increasing their audit case load was something they were trying to do, 

nor is an audit a civil penalty for failure to submit to the VFCP.  Even assuming an audit is done and there are NO other issues, where is the dollar amount / formula / parameters listed for a civil enforcement action for failure to submit to VFCP? 

Also, just because VFCP might be easy for some, does that mean it should be required under threat of enforcement? 

For many small employers it is intimidating and they would not be comfortable doing it themselves. They WANT to run their plan correctly, and would end up spending money on an outside provider to do it for them. 

2 minutes ago, justanotheradmin said:

Also, just because VFCP might be easy for some, does that mean it should be required under threat of enforcement? 

For many small employers it is intimidating and they would not be comfortable doing it themselves. They WANT to run their plan correctly, and would end up spending money on an outside provider to do it for them. 

Simple solution - DON'T be late with contributions.  The DOL has been harping on this for more than a decade.

Business people have deadlines for all sorts of things - with penalties.  A widget manufacturer who doesn't get product to GM get's stung HARD.  A road paver who doesn't complete X miles by a certain date is penalized.  If they are BUSINESS PEOPLE, establish a business process to handle this on time, and it isn't a concern.

7 minutes ago, justanotheradmin said:

 Its just that the breach and correction weren't reported to the DOL.

Which is part of the correction.

Your argument is that you don't want to fully correct because it is inconvenient.

The DOL letter states that a "VFCP team member can assist the applicant throughout the process to ensure that the correct documents are provided and to answer any questions that the applicant may have."

I'm wondering how effective this would be if clients were to contact them and do the forms themselves.  (If they were willing in order to save the expense of the TPA preparing everything.)  Is there a direct phone number for this DOL service?

2 minutes ago, RatherBeGolfing said:

Which is part of the correction.

Your argument is that you don't want to fully correct because it is inconvenient.

that may be the case for some - in which case they need to know the penalties for failing to do that part of the correction so the fiduciaries can make an informed decision. 

I'm still waiting for someone to give a link or citation that gives guidance on what those penalties might be. Specifically the penalty for failing to submit. 

If a plan sponsor files their 5500 late, there are published daily penalties, if there are problems found under Audit CAP EPCRS provides parameters from which penalties are derived. 

Surely there is similar guidance for VFCP?

20 minutes ago, justanotheradmin said:

If a plan sponsor files their 5500 late, there are published daily penalties, if there are problems found under Audit CAP EPCRS provides parameters from which penalties are derived. 

Surely there is similar guidance for VFCP?

I think you are looking for a published rate of "fines" for this - and it doesn't exist.  Late contributions are a breach of fiduciary duty - the consequences of which range from "making the plan whole" to "being banned from ever serving as a fiduciary again" to "federal jail time" (misuse of employee benefit plan money is a federal felony).  Bottom line, you leave your fate to the DOL, the DOJ and a judge.  Very disconcerting, to say the least.

It's also a prohibited transaction - whose penalties are widely known.

That's a start. I wasn't looking for a published rate of fines, even under EPCRS the types of taxes and penalties vary greatly, but there is a list of what things the IRS considers when coming up with their penalty number.

I'm only familiar with the IRS prohibited transaction excise tax 15% and 100% respectively of the amount involved. For the small plans I primarily see, even the amount involved in minuscule (less than $100 usually), so if the difference is paying a TPA/ CPA / Attorney hundreds of dollars to prepare an submit a VFCP I could see the plan sponsor opting to just pay the 100% excise tax. 

Perhaps this is splitting hairs, but I would argue there is a technical difference between "making the plan whole" and reporting the failure and subsequent correction to the DOL. the later is procedural, and protects the fiduciary from penalty, the former provides the benefit due to the participants. 

If anyone has clients that have received these newer threatening letters that decided not to do anything about them, what kind of response has come from the DOL after the 60 days is up? I'd be curious if anyone is willing to share. 

I'm agree the late deposit itself is a prohibited transaction -

Is the failure to report the late deposit and the subsequent correction to the VFCP a prohibited transaction? Is the argument that failure to comply that with technical requirement for "completeness" negates the other parts of the correction that were done (lost earnings, 5330, excise tax etc.)? Such that if you don't correct perfectly and in full, the penalties are the same as if no correction was done at all? I don't think any reasonable person would make that argument. 

So i'm not asking about the penalties for the late deposit - I'm asking about the penalty for failure to check the last box and submit to the VFCP. If anyone has ideas about that, I'd be curious to hear. I'm sure there must be something out there, even if just informal information from a PLR or a Q & A session or something. 

Self correction may be used to satisfy the IRS requirements to keep the plan tax-qualified.  However, late contributions are also a fiduciary violation under the DOL, and the DOL only allows for correction under the VFCP.  The VFCP program ensures the employer is not subjected to civil penalties.  These articles reference a civil penalty of 20%  of the recovered amount.

https://www.truckerhuss.com/2015/12/late-deposits-a-timely-topic-2/

https://fsb-law.com/employee-benefit-plans-and-the-voluntary-fiduciary-correction-program/

Per the VFCP FAQs: 

Participant contributions to the plan were delinquent, but the dollar amount needed to correct is very small. Do I have to participate in the VFCP?

No one is required to file an application under the VFCP to correct a violation. Participation is voluntary. Of course, you must take appropriate actions to correct the violation even if you don’t submit an application. However, if you don’t file an application with us, you can’t get the relief available under the Program. In addition, if we discover the violation during an investigation, and the correction was not complete, a civil penalty may be assessed on any additional amount required to fully correct the violation. Remember, too, that you aren’t eligible for the IRS excise tax relief unless you receive a no action letter. See the FAQs on the class exemption for more information.

The DOL also states that the VFCP calculator is intentionally generous and may only be used to calculate earnings for use in a VFCP filing.  In other words, if you self-correct, then the DOL may audit you later and question the calculations you performed and the assumptions you used.  The DOL may take an aggressive stance about what you should have done to correct.  Additionally, certain additional penalties may apply on top of the ultimate correction amount that the DOL determines. 

That said--if it is a $10 correction, I find it difficult to imagine the DOL coming down hard on your good faith self-correction attempt.  As a practical matter, however, triggering an audit is quite expensive and very likely to turn up other errors that you didn't realize that you had made (and it will be too late to correct them under VFCP).