Advisory Committee on Tax Exempt and Government Entities (ACT ...

Improving the Employee Plans Compliance Resolution System: A Roadmap For Greater ComplianceOne proposed way to establish the appropriate fee is to create a chart similar to thatadopted for nonamenders discovered during the determination letter application processnot related to a VCP submission. 68 QSLOB notice violations should become subject toa fixed dollar sanction rather than loss of QSLOB status.Presumably, if an employer has a QSLOB issue not related to an untimely notice filing,but rather related to a substantive deficiency to comply with other applicablerequirements, such Plan Failure can be corrected through the VCP process. However,since Rev. Proc. 2006-27 is silent on the subject of QSLOBs generally, the ACTrecommends that QSLOB violations be specifically addressed so that it is clear to PlanSponsors that these types of issues, whether notice-related or substantive, can beresolved through VCP.b. Use of the DOL Online Calculator as an Acceptable EarningsMethodologyIn many VCP filings for qualified plans, correction of Operational Failures involvescalculating lost earnings in order to make Participants whole. In some cases, theOperational Failure is strictly one which affects qualification, for example, the exclusionof eligible employees from the ability to make elective deferrals. However, in othercases, the Plan Failure may constitute both a Qualification Failure under the InternalRevenue Code and a Plan Failure under ERISA; for example, the late transmittal ofelective deferrals in plans where the required date of deposit of elective deferrals is astated plan provision.Under the DOL’s Voluntary Fiduciary Correction Program (“VFCP”), the onlinecalculator is the preferred methodology to be utilized when filing a plan with VFCP. Forplans which have only qualification issues, it would be convenient to utilize the onlinecalculator under VCP. For plans with both Qualification Failures under the Code andERISA failures enforced by the DOL, use of the online calculator would solve a numberof problems faced by Plan Sponsors.In such cases, Sponsors are often put in a position where the correction amountrequired under VCP is a different correction amount from that calculated and submittedunder the VFCP. Not only does this inconsistency make no logical sense; it alsocreates a real-world dilemma for plan administrators: different correction amounts havebeen calculated for the same plan Participants for the same operational problem,causing uncertainty as to the amount to be deposited in the Participants’ accounts toachieve full correction.Also, since there is some overlap in enforcement of certain plan provisions, practitionersare challenged in preparing IRS Form 5330 filings, wondering whether to report theamount actually contributed to the plan for correction as required by the DOL or theamount calculated under VCP.68 Rev. Proc. 2006-27, § 14.04.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 32