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Attorneys, IRS. However, the Windsor same sex spouse application is/was limited to those provisions governed by tax law rather than ERISA. Since nonelecting church plans are not subject to PRSA and QJSA rules, death benefits could be provided solely to opposite sex married couples but would have to recognize a same sex spouse for purposes of applying minimum distribution rules and rollover rules.

Based on the above, the business manager's lack of authority does not affect the plan's status. If it would be an ERISA-covered plan otherwise, it likely remains so. The plan assets are plan assets, so are treated like any other plan assets. "Returning contributions" sounds like a bad idea to me. ERISA provisions apply regardless of the business manager's authority. With respect to returning contributions, the employer must follow ERISA and the plan terms, and court orders, if any. There is nothing in your summary that suggests a permissible reason for refunding contributions to participants. They would likely involve in-service distributions and/or distributions before normal retirement age, which would probably violate the plan terms and definitely violate qualification requirements, so you would be triggering ERISA fiduciary violations and plan disqualification (resulting in adverse tax consequences to the employees and employer). So much is based on the specific facts, this employer needs to find a decent benefits attorney (to address these questions in a way that the employer can rely on) and employment lawyer (to handle the business manager). (None of this is legal advice. Just some reflections to help give your reflections some structure.)

I have not encountered it before. I have some reflections. The short version is that I would not suggest arguing that the plan is not an ERISA plan (or otherwise disclaiming the plan, its existence or its ERISA coverage solely on the basis that the employer didn't authorize the plan), and the employer probably has some state law claims against the business manager, but frankly should be more concerned about the lack of internal controls that allowed this to happen without the employer's awareness. @Gina Alsdorf is right, a lot depends on the facts and circumstances. As is always the case with legal questions, "it depends.' From my armchair, between the participants and the plan, I doubt there is a valid argument against the plan's existence or contributions being plan assets. That ship has sailed. ERISA probably preempts state law contract and agency law principles with respect to participants' claims about the plan and its existence. The mere existence of a written plan established and maintained to provide retirement benefits under the auspices of the employer, even if it was without the employer's authorization, and to which employees contributed, would likely be enough to deem it a "plan" under ERISA. Also, employees would have estoppel arguments that the plan has been held out to exist, with reliance (contributions withheld) and operated under the auspices of the employer. The employer would be on very shaky ground trying to disclaim or undo the plan and even more shaky ground claiming it did not exist or was not established and maintained by the employer, even if the business manager did so without authority. The employer would probably be inviting ERISA claims if it did so, and should prepare to pay participants' attorney's fees if it goes down that path. To the extent state law (or federal law--courts have held ERISA contemplates federal common law contract principles), the business manager's apparent authority is usually enough to bind the employer to the participants and service providers. Unless participants (or service providers, if the employer is concerned about having to pay them) knew that the business manager lacked authority to act in this capacity for the employer, an agent's (business manager's) apparent authority is usually enough to bind the principal (employer). Between the employer and the business manager, the employer may have a claim against the business manager for acting outside of the scope of their authority, if there is a way of establishing the parameters of the agent's authority (burden is on the employer). The question is what the damages are. I'm guessing this is a small employer and a small 401(k) with a large TPA where the fees are minimal, so below $10K/year. That is unlikely to be worth litigating over. I imagine this is a small employer, but the fact that the business manager could set up a plan and arrange to withhold employee contributions for any period of time without the employer's awareness raises serious questions about the employer's internal procedures, oversight and financial controls. This whole situation should force some serious self-reflection on the employer's part. (None of this is legal advice. Just some reflections to help give your reflections some structure.)

When will this business manager be fired?

I have a feeling I know which recordkeeper you're talking about. I agree completely, applying additional payments of principal to offset future interest is unsound. I don't think you'll find that rule in any IRS regulation; it is simply not how loans work. If you are going to stay with this recordkeeper then you may want to modify the plan's loan policy to disallow repayment amounts other than the scheduled amount. A participant could request a re-amortization if they want to accelerate their payoff. Again, if I know which recordkeeper this is, then they have a function to request a payoff quote for an employee who wants to repay their loan in full; if the amount generated by the quote is deposited within a certain timeframe then it will correctly apply it to principal and treat the loan as fully repaid. If allowing random repayment amounts is important to the plan sponsor, then they should find a new recordkeeper, as the current one does not meet the plan's requirements. They should let the recordkeeper know why they are leaving, if they choose this route.

I'd suggest looking up the pension organizations that give us all the fancy letters after our names, and explore their education offerings. (ASPPA/NIPA to name two to start with)

Have they ever worked 1000 hours in a year? If not could you test coverage on the basis of disaggregating otherwise excludable employees?