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buckyks

414(h)(2)

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If, through administrative error, an employee is not enrolled in the employer's 401(a)/414(h)(2) pension plan when eligibility has been met, who is responsible for making up the 414(h)(2) contribution? Can the employer force the employee to make-up the past 414(h)(2) contribution if the employee cannot afford to?

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Where is the authority to take the back contributions out of the employees's salary? Some states limit the amount of a deduction that can be taken out of an employee's salary. What does the plan say about enrollment? Why should the employee pay for the enrollment failure? Why not just make the contributions from the date the employee is enrolled and forget about prior contributions?

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Plan document states "In lieu of a contribution made by the employee, the employer shall contribute to the planfor each plan year in accordance with Code Section 414(h)(2), an amount equal to X % of a Participant's compensation". Like any PERS plan, that

% or $ is deducted from compensation before taxation, but after FICA withholdings on a per pay basis, and shown on the employee's pay stub. Therefore, one could interpret that to mean contributions from an employee's pay, but treated as an employer contribution.

If participation is required when eligible, and eligible employees were not enrolled into the plan until a year after meeting eligibility requirements, obviously their accounts should be made whole as if they had been enrolled in a timely manner. To simply start from the date of discovery would deny each participant a years worth of contributions and gain/loss that they were entitled to as a benefit .

Since, in reality, the 414(h)(2) employee contribution reduces the employees compensation, who is obligated to make up the 414(h)(2) back contribution. If the employer makes it up, they have, in essence given the employee a pay raise for the previous time frame, and then a pay reduction from the date of discovery.

Am I wrong in my analysis?

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I think you would have to look at applicable state and local law. However, in order to constitute a 414(h) pick-up, the salary reduction would have to either be mandatory, or irrevocable once the employee made it. Thus, failing to reduce the employee's salary would in effect result in paying an employee more than the salary to which s/he was entitled. Unless the extra payment was ratified by the body with authority to set employees' salaries, it would presumably be out of compliance with law. Again, you would have to look at state or local law to determine what actions would be required, and by whom, in order to recoup the excess. As a practical matter, most governmental entities end up giving the employee some reasonable period to repay if the error was not the employee's fault.

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Thank you for your response. This is a county hospital, and participation in their pension plan is mandatory. The individuals in question were notified that they could make up the contributions over a period of time, but apparently have grave reservations about that solution. We shall look at state law for further guidance.

Any additional response is appreciated.

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