401K Employer holding their contribution till End of Year...

[Guest Karla M]

We just found out - by way of an obscure link on our company's intranet site - that they will be holding their promised contribution to our pension plan until 12.31.02 instead of making bi-weekly contributions as done in the past. AND if we leave employ before 12.31.02 - we lose their portion of the contributions!!

We're RIPPING mad!!

#1 because we'll lose anything we might have earned on that money during the year, while they collect interest on it.

#2 because if we leave (or get laid off like they did to people this year) on 12/30/02 we lose ALOT of money! and

#3 - almost as importantly, they have not notified us!! Someone accidentally came across a notation on the company's intranet site and passed it around.

Is it legal for them to change our plan like that - to withhold money they previously promised to us? And aren't they required under ERISSA to notify each of us in writing if they're going to do this to us??

Sympathy welcomed!! :mad:

[Bri]

Well considering most of us here probably get paid by the employers and not the participants for a living, sympathy may be hard to come by....

However, are you specifically referring to the company match on the 401(k)? You'll probably want to check your Summary Plan Description (which they are required to have given you) for the allocation of the match. Check to see if the plan is *required* to match the contributions during the year. A lot of plans actually do their match after the end of the plan year, and it's written that way in the plan document and SPD. And a lot of plans require you to be employed at year end to share in the contribution. If your company is just adding this year-end employment requirement out of the blue, then yes, you do have an ERISA-based gripe....they'd be cutting back a benefit without providing advance notice. But check the SPD, if you have it, or the plan document (you have a right to see it, for the cost of copying). If they changed the allocation requirements, you should be getting at least a Summary of Material Modifications to your SPD.

It may turn out your employer was being nicer than they needed to, and now resorting to less niceness....

--bri

[Erik Read]

I'd disagree to some extent. Sounds like your mad about the Profit Sharing contribution not being made on a regular basis. However, there is probably a vesting schedule attached to the contributions, in which case your not lossing the money, just as you mentioned the interest over the period of the year.

If the notice was posted to your intranet, that can be construed as "written notice" to the participants in this day and age of electronic notices, this is a grey area, and I'm sure someone will disagree with me. Just my opinion on e-notices and paperless world.

If however the decission to withhold the contributions is your deferral contributions, then they have a big problem, deferrals are required to be deposited as soon as they can be segregated from the other employer assets - in some cases perhaps 3 business days, but in no event more than 15 days after the month in which they were withheld from the payroll.

Looking forward to other comments here.

[pmacduff]

The original post refers to "pension" plan. If the employer had been "prefunding" their contribution and now decided to wait until the end of the year to fund; I don't see any impropriety. As a prior thread mentioned, pension prefunding is a "nice" thing for an employer to do, but not required in a Pension plan and certainly not in a Profit Sharing Plan. I find it hard to believe that the employer was talking about deferral contributions being delayed as we all know that would be absurd in this environment. It must be an employer contribution. As far as the employer instituting the "last day rule" in the plan, I agree that there should be some sort of participant disclosure required. However, without more detailed information, it's hard to say. Although it may be a bitter pill to swallow, it is possible that the company has done nothing wrong. Sorry to play "devil's advocate", but someone has to!

[david rigby]

Just a minor clarification to the post by Bri:

As a participant, you should have been given a summary plan description (SPD). This is the first place to start. Second, you also have the right to your own copy of the plan document, for a fee to cover copying costs. Third, you have a right to sit in somebody's office and read the plan document, for no cost.

The information needed to help your original question is:

- what type of plan (profit-sharing, 401(k), pension, etc.)

- what type of contribution are you referencing? (employee deferrals under a 401(k) plan, employer match under a 401(k) plan, employer contribution under a profit sharing plan, employer contribution under a pension plan, etc.)

- assuming you are referring to a 401(k) plan, what does the plan say about who is entitled to a match and/or profit sharing contribution? For example, it might say that only employees who are still employed on 12/31 will get the match for that year. Thus, as implied in the earlier posts, the employer may have been doing something in the past that was more generous than required by the plan, and now they are changing it.

In addition, there is the implication that the employees have not received any official notification of this change. Is is possible that what you read is not final, but just somebody's suggestion?

Another issue for readers is to consider whether the plan may have de facto changed a plan provision. That is, if the plan had a last day rule, but it was never observed, is there a possibility that would be considered a plan change? Opinions?

[Guest Karla M]

Thank you everyone for your replies. I'm sorry for the confusion I caused by referring to my "pension plan". I meant the 401K plan. Almost all of us are fully vested in the plan so prior to the change, any contributions and the interest earned thereon was ours from the day the contribution was made.

Now I don't mean to be ungrateful, but to say that they were being nice before by handling the contributions the way they did doesn't cut it. That is what was promised as a condition of our employment.

I think what is bothering me most is that when we were hired, we were promised this benefit and some others that have since been reduced. The employer has reduced our medical benefits, eliminated our bonuses (which were significant and based on percentage of "sales"), eliminated our option to nominate fellow employees for cash awards (they didn't tell ANYONE about that one), reduced our number of paid days off, significantly reduced our severance packages, etc., etc. etc. All if these changes have been made in the last two years - ever since we were "bought out" by this company. However, we are supposed to work just as hard - no hardner now that they have laid off staff, and get compensated less. How much are we supposed to take? The more marketable people are leaving - I'll be next!

Also, they have not notified our "branch of the company" adequately about the intranet web site. I know - I'm in systems support and I frequently encounter users who have never heard of it. So there is no way that I can see that would be equivilant to properly notifying us of this change under ERISSA.

Thanks again for everyone's input. What I am most anxious for at this point is specific information about possible non-compliance with ERISSA and what can be done about it.

[Kirk Maldonado]

If you are really upset about the employer not treating you the way you think you deserve, then bitch a lot. That will convince your employer that the plan is more trouble than it is work so it will terminate the plan. Then all your problems will go away.

[david rigby]

I can't resist.

I also have experience with "being bought out." The result is ususally twofold:

- someone (or a few someones) get paid nicely for the buyout,

- but afterward, the buyer wants the acquired company to produce enough profits to pay for the acquisition. This means higher profits/margins than before the buyout. All the employees who are left have to work that much harder/longer to accomplish this.

In other words, you are paying for the money that was paid to your boss.

[Guest SPOT]

Maybe I am just in a bad mood today, but I have a big problem with whining. We live in the most amazing country in the world and our FREE MARKET system works! You as an employee are part of the system and can decide what type of employer you want to work for. It is nothing more than a business arrangement. Why do employees feel that their employers owe them everything from date of hire to the grave? If you choose to leave your current employer, would you even consider that you owe them anything after your last day of work?

Also, the majority of employers I work with do want to show their appreciation for the hard work of their employees in the form if benefits, profit sharing, bonuses, etc. But when times get tough, they need to be able to tighten the purse strings. Also, don't just assume that the owners of the company are making tons of money. I admit, I work with small to medium employers and I can't comment on large corporations. I often see that staff salaries are higher than shareholders when times are tough. Sometimes the shareholders even live off of their savings and don't draw a salary. Gee whiz, I can see why they may want to cut costs a little bit so they can support their families and get a RETURN ON THEIR INVESTMENT!

When you say you were promised a specific employer contribution, what do you mean? Employer contributions into profit sharing plans are usually discretionary. I am sorry about the buyout, but I don't think it is so bad for the prior shareholders to expect a return on their investment. In addition, in the current climate most employers have had to analyze benefits and cut costs, especially health insurance. On the other hand, just because you see a reduced benefit doesn't mean that the employer is spending less on benefits, they just aren't getting the "bang for the buck" that they used to.

Sorry, Just another perspective

[GBurns]

Contrary to what many people seem to think we do not have a Free Market system, however, we aare a society of laws.

The original post asked the question "Is it legal..." to do what was done.

The employer made a commitment but although that commitment might be changed, there are laws governing the change. Was the emplyer compliant?

For employees to want an employer to observe the law does not seem unreasonable nor does it seem that they want cradle to grave benefits etc. They seem to want what the law provides.

To ask any person to put their tails between their legs and walk away from mistreatment is to show total disregard for the freedoms that we enjoy and for which so many have fought for and died.

Employees have to take a stand for their legal rights. There have been too many meltdowns of employee rights and benefits by taking the position of subservience that some are advocating. It is the laws of this country and the enforcement of them that makes this an amazing country.

All the original post asked was "Is it legal...?"

[AndyH]

Back to the original question and the legality, is notice even required if the plan were amended in 2001 to require employment on 12/31/2002 in order to receive a share of the match or profit sharing contribution?

What would be required besides a Summary of Material Modifications due within 210 days of the amendment date, which could be as late as 12/31/2001?

I wouldn't think this would be a 204(h) matter requiring 15days/ reasonable advance notice.

I agree participants should be notified in advance, but is there any requirement to do so?

[Jon Chambers]

Coming back to the original question, I think it really depends on whether the pre-funding was a matter of policy or a plan requirement. First, based on Karla's clarification, it appears the question relates to a 401(k) match. We all know the funding rules. The match needs to be funded before the employer's tax filing deadline. Nothing in the funding rules prevents the employer from funding earlier. And I'm not aware of any rule that requires an employer that was electively funding early to provide notice of a change to a later funding that is within the required timeframe.

The second element of the question has to do with participant accrual of the matching contribution. It appears that the employer is now imposing a last day requirement. This probably does require notice, unless (as I've seen relatively frequently), the plan previously had a last day requirement that the employer ignored (since they were funding on a payroll frequency, and would have had a big problem with unallocable contributions that were already in the plan--I'm not even going to begin getting into the problems with this). Thus, the requirement for notice turns on whether the last day requirement is a new rule, in which case notice is required, or simply the appropriate application of an existing rule, in which case notice is not required. As earlier posters have noted, a quick review of the SPD should answer this question.

Finally, Karla raises the question of large layoffs on 12/30 to avoid the requirement to make a contribution for the year. Under ERISA, it is not permissible to terminate a participant's employment to prevent them from accruing a benefit under a qualified plan. Whether this rule would be triggered depends on the size and scope of the layoff--eliminating one or two positions from a large employer typically doesn't trigger it, eliminating 50% of the workforce almost certainly would. Most companies I work with are sensitive to this issue, and provide employees with the benefit of the doubt, either deferring the layoff date until after the last day requirement is met, or otherwise bridging service such that laid off employees that worked the bulk of the year receive a contribution for their final year. A layoff that is clearly designed to eliminate an otherwise required contribution to an ERISA plan is a relatively easy target for litigation claiming wrongful termination.

Hope this helps,

[AndyH]

Jon, what law or regulation requires a notice in advance of the SMM due date to amend the plan and impose a last day employment requirement for receipt of a matching contribution?

[Jon Chambers]

AndyH, you make a reasonable point, and I'm probably not going to be able to come up with a clear cite. So let me give you my logic instead.

1) If the matching contribution is fully discretionary, the 204(h) notice clearly doesn't apply. But as a practical matter, it's impossible to pre-fund a fully discretionary match, so my presumption is that the match was contributed and funded according to some definable formula (e.g., 50% of the first 6% of pay deferred). My presumption is that this formula is written into the plan document.

2) Adding a last day requirement would reduce the rate of benefit accrual under a definitely determinable formula written into the plan. Does 204(h) apply? You could argue no, since the plan isn't a "pension plan". You could argue yes, since the employer has a legal obligation to fund in accordance with plan terms, that makes the matching obligation look like pension obligation.

I guess I took a shortcut, and cited what I see as typical practice, even if there is no clearly applicable legal requirement.

BTW, if anyone out there can bail me out by providing AndyH with an applicable cite, I'd appreciate it.

[Kirk Maldonado]

Jon:

I can't bail you out (nor can anybody else), because AndyH is right.