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Particpant Direction not followed


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Participants made investment elections from a panel of funds. However, when their contributions were deposited to the plan, they were invested in a "default" investment instead.

The plan sponsor and trustees recently discovered that this has been occurring for several years and are willing to make up any losses incurred. If a participant's had a gain, it will remain in the participant's account. This is a small plan with about 30% of the participants incurring a loss.

Since they are willing to "self-correction" and let the participants know what has happened and how it is being corrected, is this an issue that should be or could be reported under the DOL's Voluntary Fiduciary Correction Program or the IRS's VCP?

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  • 5 years later...

I'm curious about this as well. 

I've just run into something similar where the investment elections weren't received by the vendor and so the participants were invested in the default investment.  I am trying to find out if a correction is required or not.  The participants did receive statements showing where they were invested over the past 2 years (it was just discovered by the sponsor) and never said anything either.

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  • 3 years later...

EPCRS provides specific correction methods for failure to implement or follow participant direction regarding the amount contributed but I do not believe that EPCRS addresses investment direction snafus. However, assuming the plan document requires the Plan Administrator to follow the investment directions of the participants, this is a plan operational failure and eligible for correction under EPCRS. You simply won't have direct guidance on acceptable methods of correction. Nevertheless, I believe that the basic tenant of any correction made under EPCRS is applicable to your situation. Namely, you correct in such a manner that ensures that the participants are in the same position that they would have been had their direction been properly followed.

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