Jump to content

Employee refusal to allow corrective contribution to 403(b)?


KaJay

Recommended Posts

I am working with a church that is in the midst of an EPCRS correction. One of the areas they are working to correct is failure to offer participation in the plan to all eligible employees. Per the written plan document, part-time employees must be offered participation. They are looking at needing to provide a 1.5% corrective contribution on behalf of these PT employees. The question the church has proposed is, "what if an employee refuses the corrective contribution?".

Because they were never offered an opportunity, these part time employees are not enrolled. If refusal is not an option, and an employee is unwilling to complete an enrollment form, can the church just provide the plan with the basic enrollment information (name, ssn, dob, etc.) so the plan could open an account for the individual to accept the contribution on the employee's behalf?

If refusal is an option, could the church simply receive a signed statement from the employee in order to justify not making a "full correction"?

TIA for your responses.

 

Link to comment
Share on other sites

If you want to comply with IRS guidelines for self-correction, employee "refusal" is irrelevant, and of course the employer should just open the account and invest the money in the default investment.  Are refusals anticipated for legitimate religious reasons which the employer wishes to respect?  If so VCP may be worth a shot. 

Link to comment
Share on other sites

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

Link to comment
Share on other sites

I agree with jpod.  Some old 403(b) plans using annuity contracts thought that they could not make employer contributions unless an employee enrolled (because of the annuity contract application rules).  ERISA plans just do not work that way.  The employer has to make the contribution and cause the vendor to open an account to receive it.  If the vendor refuses (and we have had this happen), the responsibility is still on the plan sponsor to  add a vendor which will accept these contributions.

If there is a withdrawal provision which would work (in-service?), one might suggest to the reluctant employee that he or she withdraw the contribution from the plan and contribute it to the church.  Or just make a "like" contribution to the Church and wait for a distribution option which will not cause a pre-mature distribution penalty.  Sometimes employees in such situations think they are doing the church a favor by trying to refuse the contribution.  It just does not work that way and I would talk the employee through the idea of contributing a like amount to make the church "whole."

Patricia Neal Jensen, JD

Vice President and Nonprofit Practice Leader

|Future Plan, an Ascensus Company

21031 Ventura Blvd., 12th Floor

Woodland Hills, CA 91364

E patricia.jensen@futureplan.com

P 949-325-6727

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...