401K contributions cut off due to $10,500 limit but not restarted in n

[Guest netadmin]

The company payroll system cut off 401K payroll deductions and contributions in Oct-00 when I hit the Federal limit of 10,500 for the year. I was not informed of the fact that they had initiated the stop and was unaware of any rules regarding a contribution limit.

I'm a salaried employee with direct deposit and quite frankly never noticed this change since there are around 11 other deductions on the pay stub. The company payroll system did NOT resume deductions and contributions starting on Jan 1, 01.

I've been given many different lines regarding why they cannot fix the back deductions and contributions. They've also stated that it was my error since I did not "tell" T. Rowe Price (firm where money is sent to) to resume deductions. T. Rowe Price's system continued to state that I was at the 20% deduction level and stated the company's payroll system should have just resumed sending money on Jan. 1, 01.

What can be done to get this fixed and do I need to seek legal assistance?

[david rigby]

Why would T.Rowe Price be involved in the deductions from your paycheck? Unless you work for Price, it seems unlikely that they are responsible for your paycheck. Sounds like someone is trying to pass the buck, to you. But to be charitable, perhaps the HR person you talked with does not have any idea how the payroll process works.

[Guest netadmin]

T. Rowe Price simply was the company that my company moved the 401K plan too interms of where the money is held. Also, T. Rowe Price has an online system where you can manage your deduction percentage and where you elect that money to be invested.

[QDROphile]

They can fix it (although it may not be as easy as some drone would like), and I think you have a good position that they must fix it. They will be better off fixing it before the end of the year. You should be prepared to cough up the money to go into the plan. If they don't fix it by the end of the year, depending on what is in the plan documents and other paperwork, the company may have to cover the deferral with its money and you get $10, 500 plus imputed earnings for free! That ought to motivate them to fix it now with your money.

[david rigby]

You use the phrase "manage your deduction percentage". If this refers to how the money is invested, then that is not relevant to the process of actually taking the deduction. However, if this refers to your being able to control the amount ($ or %) of the actual deduction, then that might be another matter.

In any case, the company ceased your deduction because you hit the $ limit. Common sense should indicate that you did not make that election, so they should have resumed deductions on January 1. (But don't rely too much on common sense.)

The IRS issued Revenue Procedure 2001-17 http://www.benefitslink.com/IRS/revproc2001-17.shtml to address how plans can make corrections to various types of "failures". This one falls into the "boo-boo" category.

Scroll to the bottom, and look at Section 2, subsection .02. The answer to your question is "it depends". If the mistake is more than 3 months, then the employer should make a contribution on your behalf equal to the average for your group (either Highly Compensated Employees or Nonhighly Compensated Employees). Plus appropriate match, plus appropriate earnings. I'm not sure you will get the full $10,500 as QDROphile suggests.

[Guest dmj1998]

let's not forget the other half of this equation - what about the employee? a pre-tax contribution to a 401k plan is the employee's agreement to reduce their paycheck in exchange for a deposit to the plan. statements like "I was not informed of the fact that they had initiated the stop and was unaware of any rules regarding a contribution limit. I'm a salaried employee with direct deposit and quite frankly never noticed this change since there are around 11 other deductions on the pay stub. " do not indicate that the employer is wholely at fault here.

You stated that it was shut off in Oct 2000 and your posting is late in the year 2001. Did you go a full year without realizing that your bank account had a little more liquidity than it had in the past?

Its easy to say that you can still defer into the plan for the rest of the year, but your company's payroll processing may not be set-up systematically to withhold amount like 75% of your next couple checks to make-up for the earlier part of this year.

[Guest netadmin]

Pax => You use the phrase "manage your deduction percentage". If this refers to how the money is invested, then that is not relevant to the process of actually taking the deduction. However, if this refers to your being able to control the amount ($ or %) of the actual deduction, then that might be another matter. You could manage both the % of the deduction and where it is invested. Keep in mind that the T. Rowe Price system always showed the correct % to deduct. They just were not getting any money sent to them from the company's payroll system. Furthermore, when I did check the system there was activity showing since some stock dividends were coming in and being distributed like a payroll deduction.

I wasn't sure to begin with how large a post could be nor what kind of help this posting would bring. I'm grateful for the information I've received to date and have further details that may answers some of the later questions.

I was part of a company restructuring in April-01 and my position was eliminated. It was during this transistion time that I came across the error and notified my company. This came during my severance negotiations and I had held up receiving my severance check until this was resolved. But the company continuously failed to give me a final answer and finally sent my severance check stating that would have no baring resolving the 401K issue. I was pushing the company on this issue the entire summer and fall waiting while they "got a legal opinion" only to be told later that they "didn't get a legal opinon but would settle outside of the plan" only then to be told they had a legal opinion and settlement talks began. (if you think that is confusing and frustrating.....) I talked with the plan administrator and came up with a figure which would cover the lost matching contributions and the tax implications of this error since all of my contributions were before tax and once I received the check for the matching contributions, they would become taxable.

At any rate, the plan admin was to go get final approval and put this to bed, promising an answer the following Monday. No reply came and after several weeks of pestering them I then found out that the plan admin had quit. Now the VP of HR is stating they knew nothing about this and plans to do nothing. They further stated "In point of fact the plan is under no obligation to make any retroactive contribution to a 401k plan that you did not participate in." I'm confident this is a bluff otherwise I would have received a legal opinion in writing, which they refused to do, and this would have been over in May.

Keep in mind there was always talk of bringing me back on at the company and I didn't want to rock the boat too much. Now I'm beyond tired of screwing around on this issue and want it finalized. I have gotten the names of the benefits committee members so that I can make a formal appeal (all of the VP's and presidents of the company). Is anyone familiar with this process and/or should I seek legal counsel?

Again, thanks for any information provided.

[Guest dmj1998]

get a copy of your plan's spd. it should outline the appeals process for participants. it doesn't sound like any of this exchange between you and your former company is writing - so i would suggest you start documenting everything. the unfortunate thing is that the calendar year is coming to an end. if you think the company's payroll dept. is balking at correcting this now, wait until after the w-2's are generated in january and see what kind of resistance they put up then....:eek:

[jpod]

Would you have been entitled to vested matching contributions if the deductions had been taken out of your pay? If so, then this may be a matter worth pursuing, and you can show the Company that you mean business by threatening to contact the IRS's employee plans division and the Department of Labor's Pension and Welfare Benefits Administration unless they do something to make you "whole."

If there would not have been any vested matching contributions, then my advice would be to forget about it and get on with your life.

[Guest netadmin]

What would the Summary Plan Description do for me? The reason I ask is that it would be located at our corporate office located in another state and T. Rowe Price happened to mention a document (I'm assuming the SPD) and it was 80 pages long. I can see the company using this request to further delay action on this item.

Is it reasonable to just request the section from the SPD detailing the formal procedure? Furthermore, is handling this via email sufficient? I have documented the times we talked and kept any emails I received and notices of when they've read my emails.

Also, would it be good as part of my formal request to request a copy of the legal opinion upon which the HR VP is making the statement that they will do nothing? I could reference the fact that I want to review that ruling with the above mentioned agencies since I'm getting a very different opinion elsewhere.

PS> Yes I was fully vested and putting away the maximum contribution level. Their payroll mistake cost me matching funds, funds in my 401K, and increased taxes.

[david rigby]

The point of mentioning the SPD is that it summarizes the claims procedure(s). I agree strongly with doing this in writing. You may have to start by giving a chronology of all your past conversations.

The claim should be in writing. Your email records are fine, but not enough.

[Guest JB2]

I'll give you my 2 cents. The general approach I take with your scenario is that the plan is out of compliance. It is out of compliance because a participant made an elective deferral election, and the contribution never occured. Your contribution was automatically stopped (correct) in '00, but was not reactivated in '01. How many administrators correct this error is by following the guidance in the link provided by Pax.

Although you may be the only participant affected, it doesn't change the fact that the plan is out of compliance and you should receive a contribution. A very simplistic example would be this -- you probably would have contributed $10,500 over 12 months. You only worked for 3, so the amount is $2,425. Add in the appropriate match and an earnings adjustment and that should be the company contribution. The earnings is generally calculated up to the point that the correction (contribution) is made.

You are running into a stone wall because the individuals you are talking to do not understand all the in's and outs of qualified plans. Ask to speak to the company lawyer -- or someone assigned to the legal issues. And yes, it is always important to document -- dates, times, people you talked to and the information provided.

I vote that you pursue your case. As you are no longer being paid via payroll, I believe that the company is required to pay the entire amount.

[Guest pineapple]

Hold on everyone. You are all forgetting to ask netadmin one important question.

Did you complete the necessary deferral election forms for the 2001 plan year? Or does your plan have "evergreen" language which allows your original deferral election to carry over from year to year?

If your answer to both questions is no, then I'm sorry to say that your former employer was correct. Unless a plan has language which clearly indicates that the deferral election continues from plan year to plan year, then participants must complete a new deferral election each year.