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This discussion is a nice illustration about why an employer/administrator might prefer to keep its own records, independently from the recordkeepers’ and custodians’ records. Don’t just leave those quarter-yearly transaction reports posted to the recordkeeper’s “sponsor service center” internet site. At least copy each digital file onto the plan administrator’s computer drives and further storage. And use considered file-naming and other methods so you can remember and retrieve what you’ve kept. In the 1980s, it wasn’t easy. But now, we can help lead clients to relatively inexpensive protections.

I have had similar experiences.

Not the same set of facts but the one experience that comes close to your situation is the following. Many years ago a client of the firm I worked for back in those days was audited by the DOL. It was determined the counts were done wrong for years and they should have had been doing audits for years. The DOL's position was get the audits done for all years. They showed no interest in compromise or any flexibility. Based on that very small sample size I have to say if the government figures out the audits are missing they are going to take a hard line on getting them done.

In terms of what is legal, I agree with the original post. The match is a protected benefit under Code Section 411(d)(6) only for the participants who have fulfilled all of the allocation conditions. See Treas. Reg. Section 1.4111(d)-4, Q&A-1(d)(8).

You would be asking her to prove a negative. I believe the onus is on the plan sponsor to prove the benefit was settled. Otherwise, they owe her the benefit.

While Peter's answer is the right answer. It is my understanding the plan has a burden to keep the records to show this person was paid. Bird's answer is the most practical answer. I find if someone talks the person and points out the notice does say "may" be owed a benefit and the plan's records show they have been paid the person goes away 99.99% of the time. It is only if they don't go away after that you need to really start to go down the road Peter layouts out as a practical matter. Just to be clear have the client look for old records that might show if the person was paid or not. To make sure their benefit wasn't forfeited because they were lost of something like that. If the plan owes them the benefit the plan ought to pay the benefit. This by the way brings me back to a pet peeve of mine. Do those stupid "D" codes on the 8955-SSA. That would solve this. As I tell people all the time: When in doubt D. I have yet to see a D code to come back and bite me. I am asked all the time, "but what happens if we put a D code in and there wasn't an A code?". I have never seen that cause an issue. So when in doubt D. To the point if the client thinks they have old SSAs it might be worth to do a clean up filing this year to make sure anyone paid out and might have never had a D code filed gets one now.

IRS Notice 2020-68 includes guidance about the tax-qualification condition that a § 401(k) plan (but not any § 403(b) or § 457(b) plan) permit an employee to make elective deferrals if the employee has at least 500 hours of service a year in at least three consecutive years and has met the plan’s age requirement (for example, 21) by the end of the three-consecutive-year period. The guidance includes vesting questions mentioned in this thread. https://benefitslink.com/src/irs/n-20-68.pdf See pages 9-12. Thank you to BenefitsLink for always posting these sources so quickly.