liability of recorkeepers / administrators for late contributions

[Guest MES]

When a plan is late in submitting their contributions (missing payrolls, etc.), what responsibility does the recordkeeper bear? Should they inform the clients that in their opinion, the regulations are being violated? Should they cancel services for egregious violations? Once a recordkeeper begins to monitor these contributions for compliance with the regulations, do they take on a higher level of responsiblity? We have taken a harder line when providing administrative services (in conjunction with recordkeeping) which entails the completion of the 5500 which asks repeatedly whether contributions have been timely submitted. In egregious cases, we've cancelled administrative services. Should a recordkeeper also take the hard line? I"m curious as to what others in the industry are doing with this.

[rcline46]

Since we cannot tell if the sponsor segregated the funds before sending in to us, we cannot determine if a contribution was late. Therefore, in our annual questionnaire, we ask the client if any were late, and the form is signed by either trustee or administrator. We complete the 5500 based on that information.

[R. Butler]

I don't know of any reason why either the TPA or the record keeper would be liable for late deposits. If there are substantial and reoccurring errors, however, I do get concerned and in the past I have recommended to my employer that we dump the client. Even if there is no real basis for liability, you may have to actually defend a lawsuit.

We do recommend to our clients that deposits be segregated within days of the payroll date. We send letters out at least twice a year reminiding all of our 401(k) clients of the DOL's position on the timliness of deposits.

As far as the 5500 goes, I generally do not ask clients if their deposits were remitted timely. I am comfortable that I know every account that each plan has; I review the accounts and if any deposit is remitted after the "outside" time frame I automatically answer yes and recommend corrective actions. Deposits remitted before the "outside" time frame are looked at on a case-by-case basis. We will consult the plan sponsor. Even if we ultimately answer "no" on the 5500, we still may recommend corrective measures, but the ultimate decison is the plan sponsors.

[actuarysmith]

Our firm has used the same approach as rcline46. We ask the client to answer that question for the 5500 and let the chips fall. (We do provide a summary of the requirements for them to review before answering the question)

[k man]

i am curious, how do you get the client to answer the question for the 5500 since the new forms are computer scanned? do you make them certify or answer the question in writing separately?

[davef]

I was at an IRS/ASPA conference where the 2000 Supreme Court court case, Harris Trust and Savings v. Salomon Smith Barney (120 S.Ct. 2180), was discussed. In short, the Court stated that ERISA provides a private cause of action "for appropriate equitable relief" against a non-fiduciary party in interest for its knowing participation in a prohibited transaction.

This case raised alot of concerns with respect to the late deposit issue -- since that is a prohibited transaction. In serious situations, where deposits are not being made at all, a participant could, in theory, sue the TPA if the employer went bankrupt and it could be shown that the TPA was aware that 401(k) deposits were not being made but did nothing about it. So, does this mean that TPAs should be less involved in monitoring the timing of deposits? Should the TPA resign so as to not appear to be further "participating" in the PT? Does the TPA have a duty to inform participants and/or the DOL? What is contemplated by "appropriate equitable relief"? Seems like there are more questions than answers.