There is an exception to use a prior year's Form 5500 if asset information is not available when filing the VCP application, but that exception is not available if the submission is filed more than seven months after the close of the most recent plan year.

The deadline for filing Form 5500 is the last day of the seventh month after the plan year ends (without an extension). So, in other words, an employer who has not complied with the Form 5500 requirement cannot file a VCP submission while the untimely/late/delinquent form is outstanding. Both of the compliance failures must be addressed—the late annual report must be filed and the VCP user fee must be calculated based on the plan assets reported on that late form. Otherwise, the IRS will return the VCP filing (possibly without the submitted fee), which may create even more risk if the IRS then considers the substance of that returned filing when determining whether to initiate an audit.

The new VCP fees start at $1,500 for small plans with no more than $500,000 in plan assets, and double ($3,000) for plans between $500,000 and $10 million. For large plans with over $10 million in assets, the fee is $3,500. Common compliance errors that are now more costly to fix include (for large plans):

Compliance risks related to required minimum distributions are particularly common and far-reaching because oftentimes participants fail to keep their contact information updated. In October, the Acting Director for IRS Employee Plan Examinations issued an internal memorandum generally instructing agents not to pursue RMD violations related to late commencement of distributions if the relevant plan took specific steps to search diligently for missing/non-responsive participants.

Most notably, some of the steps include searches of related plan and plan sponsor records, and enlisting third parties (either a third-party tool or the third party itself). These are prerequisites for IRS audit relief related to late RMDs. Keep in mind that, on a more global ERISA scale, the failure to search diligently creates breach of fiduciary duty risks.

The bottom line is that, although there may be institutional challenges with getting a handle on plan compliance, increased risks and noncompliance penalties will be more painful.

Christina M. Crockett is Senior Counsel (Employee Benefits) at Fifth Third Bank. Before joining Fifth Third, she was in private practice for several years in the Washington, D.C., metropolitan area where she focused exclusively on employee benefits tax and ERISA compliance matters.