My 2 cents

Nothing to lose by going to the DOL

Money was withheld from the employee's pay, after taxes. Any checks sent on towards repayment of the loan were cut by the employer (undoubtedly a fiduciary of the plan). If the employer and custodian couldn't get their act together with respect to handling of those repayments, 100% of the blame belongs surely to one or both of them. They failed to exercise reasonable competence in the handling of this matter and it should be on one or both of them to make the employee whole. As I always point out, I am neither a lawyer nor a 401(k) plan practitioner, but how could it possibly be interpreted otherwise. Assuming that there was no 10% excise tax for an unintended premature distribution, perhaps since the employee already paid taxes due, the only real harm is attributable to the unnecessary pay reductions intended for loan repayments. Those should be refunded with accumulated interest no less than a suitable market rate or credited to the account with back interest.

Not a lawyer, not a 401(k) expert, but this situation (HCE contributes $X, but some has to be returned due to ADP testing) seems to me not to be a "conditioned on" contribution, even if the employer is on record as promising to boost their earnings to make up for the taxes on a piece of contribution that must be returned. Let us not forget that they could solve the problem without having to disgorge the excess HCE amounts by (as if) making a special contribution to the non-HCEs sufficient to have the ADP test passed.

If so, it would be a rational explanation of a benefit that was totally messed up. As noted in the original post, "In 2014, my husband requested a 401K loan from his company. It was approved, and repayment terms were set." Still indicative of a fiduciary failure.

Maybe if we all hold our breaths... Hasn't been a problem for me - I haven't seen a termination surplus in ages!

Afterthought - the participant should not be concerned with the employer getting mad at them for pursuing this. Any attempt at reprisal creates a separate legal cause of action. They are 100% protected when they seek ERISA rights.

Unless there are other factors involved, I stay with my opinion that everything that went wrong was a result of plan fiduciaries not fulfilling their duties. Perhaps working through the DOL would work best (I would not expect them to be terribly sympathetic with respect to things the fiduciaries should have done but did not). I also expect that if amounts were held back from pay but were not applied towards repayment of the loan (whether due to actions/inactions by the employer or investment manager), someone somewhere ought to owe them a hefty amount of interest (and penalties?).

Not following everything you said, but it sure sounds as though a good lawyer would come in handy. Perhaps an ERISA lawyer would be a good starting point. I am not a lawyer, but I find some of the things you said to be very confusing (especially "...we paid taxes on the full amount on 2014 taxes.", since it would be my [imperfect] understanding that if you did take out a 401(k) loan in 2014 that was not in default, it would NOT be taxable at all). One pays taxes on 401(k) withdrawals but 401(k) loans, which are not withdrawals) are not taxable. Not sure if they even have to be reported on one's taxes. If you took out a 401(k) loan and a repayment schedule was established, it wouldn't matter if pay went up or down (unless it went down so much that the repayments could not be made). Repayments are tied to the loan balance and are not indexed to subsequent wages. Are you saying that amounts were withheld from pay to repay the loan but the employer did not remit them to MassMutual? THAT IS A HUGE FIDUCIARY VIOLATION and you can sue the employer (who will always be considered a plan fiduciary, however much duties have been delegated) for any problems that would cause! See a lawyer, for sure!

Please remember - in evaluating whether the 133 1/3% rule is satisfied, one does not compare prior years, only the accruals for the current and future years. To fail, there has to be a future year whose accrual exceeds that of the current or an earlier future year by more than 1/3. NO 133 1/3% ISSUES: Plan provides 1% of pay per year of service. Plan is amended effective immediately (whether prospectively or retroactively) to 2% of pay per year of service. May need to worry about 401(a)(4) (especially if retroactive), but (if no discrimination issues) can always increase past accruals without failing the 133 1/3% rule. FAILS 133 1/3% RULE: Plan provides 1% of pay per year of service. Plan is amended to continue providing 1% of pay per year of service until 5th anniversary of amendment, after which the accruals (prospectively or retroactively) jump up to 1.5% of pay per year of service after that date.

As noted above, I don't work on health coverages. So I will back off here. I do see that changes in the active employee health plan would also apply to COBRA coverage. I did not find anything terribly clear about HRA with respect to former employees electing COBRA coverage. Perhaps former employees can elect it, but it is not so clear to me. I always thought that health care reimbursement accounts can only be available to the extent that there are salary reduction amounts. How would they be handled if the person had terminated so that there would be no salary to reduce?

Sorry, but I have a bit of difficulty accepting the idea that a physician forgot about one or more tax-sheltered retirement funds. Sounds a bit like an attempt to defraud the spouse to me. I am not a lawyer, but hiding assets in a divorce situation is fraud, right?

How would you distinguish this from a situation where the hardship was being claimed for overdue educational loans? I wouldn't think that that would qualify as a hardship, even if it was one of those miserable situations where the overdue loan payments could lead to loss of professional standing.

It is my understanding that if they don't pass the separate line of business testing requirements, coverage, participation, etc. must be passed on a controlled group basis. If a person owns and LLC and one or more other corporations, that makes it a controlled group, and just providing benefits under the LLC is probably going to fail.

It would be my opinion (noted above - not a health care practitioner) that if the termination occurs in 2017, there is absolutely no access to an HRA with respect to 2018 (except through the health program of another employee hiring the terminated employee). And that if the reason the HRA is being established is that the health insurance itself is less generous starting in 2018, the COBRA coverage cannot reflect higher deductibles/copays etc. that will be there for continuing employees in 2018. The COBRA coverage elected by the former employee must surely be no less favorable than what had been there as of the date of separation from service in 2017.

For what it's worth, I see no moral, ethical or legal obligation to "make whole" the HCEs whose 401(k) contributions were at a high enough level for the plan to fail ADP testing. It looks to me just like another effort to take care of the HCEs. Had there been more timely efforts to hold down the HCE contributions, the HCEs would have been on the hook for higher 2016 taxes instead of higher 2017 taxes. The entire regulatory structure is intended to keep HCEs from deriving too big a tax benefit from the 401(k) plan when the level of contributions from non-HCEs is on the low side. Why should there be any pressure on the sponsor to make anything up for the HCE's?