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Peter Gulia

Should a recordkeeper or TPA try to get an employer to pay a past-due participant contribution?

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Should a recordkeeper or TPA try to get an employer to pay a past-due participant contribution?

A recent BenefitsLink forum topic shows how the duty to collect a contribution often is set with someone who decided not to pay the contribution (or his or her subordinate). http://benefitslink.com/boards/index.php/topic/57803-special-trustee-responsible-for-contribution-deposits/

Imagine that you’re such a plan’s recordkeeper or third-party administrator (and you’ve designed your business to be non-fiduciary at every turn).

What do you do if a participant contribution is long past due and has not been paid to any trustee, custodian, or insurer?

Is it okay to make no effort to get the employer to pay the past-due contribution?

Or should you “do something” to try to get the employer to pay?

If so, what is the “something” you do?

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Long before we had the current plan document requirement that the Trustee (or Special Trustee)acknowledge "personal" responsibility for collecting delinquent contributions we had a recordkeeper (well known national player in Iowa) threaten to turn their client (the employer) into the DOL if they didn't pay up.

At the time I felt it was an egregious (perhaps actionable)violation of their contractual duties to their client but in the current environment of potential co-fiduciary liability it's I guess a little more understandable.

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A TPA should keep the sponsor informed of what is due. They can keep the people informed about the penalties of not paying.

I once had a client back in the '90s that hadn't deposited 401(k) deferrals for years. Other then informing people as for as I am concerned I didn't owed the participants anything else.

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I'll throw in a different vote. I'd try to get some communication from the employer and do some investigation as to why the deposit wasn't made. Is it possible the data feed from payroll was duplicated etc? You might be looking at a mistake/correction rather than a deposit that didn't happen.

If it was truly due, I would inform the employer on a consistent basis that amount was still due and the ramifications for not paying it on time. Probably about 1 time per quarter so that I could prove I had done all I could do and have a paper trail that absolves me of any repercussions of "you should have kept us informed of the situation".

Is this a one time deposit that is missing or is it going forward? After a certain point, I would fire the client if they failed to deposit what was owed consistently.

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David Rigby, thank you for that reminder.

But isn't the problem of an employer stealing participant contributions concentrated mostly in plans with few enough participants that an independent qualified public accountant is not engaged?

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Plan administrator should be notified that contribution was not made so PA can investigate what happened, e.g., glitch in transfers, embezzlement, etc but TPA should not go beyond its responsibilities spelled out in its contract with the plan. My view is that if a non fiduciary acts in a fiduciary capacity it will be at risk of being held liable as a fiduciary. TPA should not notify plan attorney or auditor because that would interfere with the privileged relationship between the attorney and plan or auditor/plan which would open up a different can of worms.

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But isn't the problem of an employer stealing participant contributions concentrated mostly in plans with few enough participants that an independent qualified public accountant is not engaged?

Yes. However, there still may be a legal and/or accounting advisor to the employer.

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