Leaderboard

First, i agree that an attorney is needed to assess whether someone has a case. Second, be aware that anyone providing services has a standard of care that is required and not fulfilling a contractual obligation is breach of contract. So, there may be a cause of action here. It depends on (a) what the TPA agreed to do; (b) what conditions needed to exist before the TPA had that duty (e.g., receiving data, being paid, etc.); (c) what limitations there are on liability in the TPA service contract; and (d) what limitations there are on how litigation can take place (e.g., statute of limitations, arbitration or mediation vs. litigation, etc. as stated in the TPA contract). Last but not least, the client should have an attorney send a demand letter to the TPA ... there is a lot of potential for results between the bad action and litigation .... Many TPAs are willing to stand behind their work. If nothing else, this is a good illustration of what I keep telling TPAs who do not think they need a service agreement! Stuff happens! Ilene

Recognizing RatherBeGolfing’s observation that the truth might not be one-sided: If you help uncover the past, get the plan sponsor/administrator’s attorney to engage you to assist her. That way, what you communicate to the attorney can be shielded under evidence-law privileges for lawyer-client communications and attorney work product.

HCEs can be excluded from SH. That's probably not the case, if it was included as a receivable by the prior TPA. My conspiracy theory mind says this change of TPAs might have been triggered by the client not wanting to make the contribution, and thinking that it would just go away if they didn't have to deal with the prior TPA any more.

While none of us knows the facts, some of what’s in the situation FishOn describes suggests a possibility of facts that might set up some opportunity for a different analysis. A rule interpreting and implementing ERISA § 3(42)’s definition for "plan assets" states this “include[s] . . . amounts that a participant has withheld from his wages by an employer, for contribution or repayment of a participant loan to the plan, as of the earliest date on which such contributions or repayments can reasonably be segregated from the employer’s general assets.” 29 C.F.R. § 2510.3-102(a)(1) https://www.ecfr.gov/current/title-29/part-2510/section-2510.3-102#p-2510.3-102(a)(1). But the rule does not specify a particular act that then must happen. Rather, the focus is on treating an amount as plan assets, distinct from the employer’s assets. An amount delivered to the plan’s trustee or its custodian, or either’s agent might be treated as the plan’s assets—even if not yet allocated to any participant’s or beneficiary’s account. As Lou S. guesses, some collaboration of the plan’s administrator, trustee, and service provider might have treated the amount that lacked instructions as the plan’s asset. Further, FishOn’s story suggests the employer/administrator or a service provider made good the balance allocated to the participant’s account as if the allocation had not been delayed. In this context, “back-dating” is an unfortunate word some recordkeeping people sometimes use to describe the operations that result in a participant’s account getting the balance the account would have if an amount had been invested on the trading day it ought to have been invested had all fiduciaries and service providers acted correctly. Perhaps there’s room for a fiduciary, after using diligence and prudence (including getting its prudently selected lawyer’s advice), to find that there was no prohibited transaction. Or a fiduciary might find the facts are not so crisp. Either way, a fiduciary might evaluate whether to use the Voluntary Fiduciary Correction Program. (An applicant may use VFCP without conceding that there was a breach.)

I'm wondering if by "back dating" the op means crediting the deferrals "as of" the correct deposit date so that future earnings are correct.

Since the amounts were withheld from the employee's paycheck, they are late deposits. Assuming that this failure is limited to this employee (or a very small number of participants so the dollars are small), and assuming the client wants some assurance that the correction acceptable to the DOL and IRS, then consider making the correction under the DOL's VFCP under PTE 2002-51 and allocating the related excise tax to the affected participants (no 5330). Use the DOL calculator to determine the lost earnings, and make sure any associated match, if any, is fully funded along with earnings. In the real world, the primary focus is putting the participant in the position of not having been harmed by the operational error, and then giving the agencies their due. Any recordkeeper worth their salt can do this in their sleep. (Note: Back-dating anything generally is a bad idea.)

Doesn't sound correct. It sounds like the funds were segregated from the employer and held in suspense until an allocation could be made. At least if I understand it correctly.

Hence my comment - I figured he wasn't excluded from the contribution to begin with.

UPDATE: Found a number on the IRS website; 877-829-5500. Client called and advised us: "WOW, in my 30 years as an accountant that was the easiest call to a government agency that I have ever had. Wait time was less than 4 minutes (as opposed to hours) and the agent actually solved the issue and is sending us a refund check."

I haven't heard of any numbers bigger than a few thousand from co-works but yesterday was the first time I recall it was mentioned on a company wide basis.

Exactly, if document requires then you have operational defect to correct.

We have, too... our client has an ESOP and a 401(k)... the erroneous SSA penalty was $20k for one plan and $13k for the other. On a $77k refund, the IRS was only going to refund the difference of $44k... pretty significant chunk. To boot, the client responded to the initial error for both plans back in August and the IRS had STILL not fixed it when the client got their refund notice in November. I recommended my client call the IRS and sit on hold for however long is necessary to set them straight, since sending written communication did no good whatsoever. Such a waste of time.

If it is a DC Plan you can exclude non-onwer HCEs by some classification. But they need to be excluded, not just not participating. If it's a DB you'll fail 401(a)(26) if they are the only two. If there are any non-keys in the Plan, they will need to get a required TH minimum if any key has a non-zero allocation rate and if there are and NHCE eligible, like the guy becomes a NHCE in the future but is still employed, you'd need to bring them in for coverage.

What does the document say?

Just to clarify to ensure I have been doing it right, I instruct my clients to get an EIN for their plan (I facilitate this). When an investment account is opened I have instructed the financial advisor to register the account to the plan and use the EIN assigned to the plan. I tell them to NOT use the business' EIN on the investment accounts. Further, when a distribution occurs the plan's EIN is used on the 1099-R, not the business' EIN Pretty logical. All good?

The non-key HCE would still need a TH contribution.

Very few contracts are bulletproof, but is it worth the cost and headache to maybe be able to shift some of the burden to the prior service provider? I agree with Lou, refer them to outside legal counsel. Also, consider that there are probably three sides to the story: the client's side, the TPA's side, and the truth.

There are other ERISA lawyers. If you have any doubts (any!), then getting legal review may be worthwhile.

Actually that is more specific to contributions being made or accrued in the same year; see below. So the mere existence of another plan is not prohibitive. (D)Arrangement may be only plan of employer (i)In general An arrangement shall not be treated as a qualified salary reduction arrangement for any year if the employer (or any predecessor employer) maintained a qualified plan with respect to which contributions were made, or benefits were accrued, for service in any year in the period beginning with the year such arrangement became effective and ending with the year for which the determination is being made. If only individuals other than employees described in subparagraph (A) of section 410(b)(3) are eligible to participate in such arrangement, then the preceding sentence shall be applied without regard to any qualified plan in which only employees so described are eligible to participate.

We've seen clients exceed that limit and run a carryforward balance deductions, or others pay the excess as W2 and currently deduct rather than contribute. This is where you put your consulting hat on as there are other (welfare) benefits where D-B prevailing wage fringe amounts can be directed. We've also done CB to cover a floor of like the first 5% of pay of D-B PW. One of the complicating issues there is if someone's PW is less than the 5% credit they still get the 5%.

Don't forget they are subject to testing, the same as any other employer contributions. Sometimes folks think that there is a pass on the testing because they are classified as Davis Bacon / Prevailing Wage. Most of the plans I see that allow those types of contributions specifically exclude HCE from that type of contribution.