401(k) Plan Not Offered To Eligible Employee

[Guest Allysenf]

I could use some guidance:

I recently received notice from a benefit administrator that I am eligible for distribution of benefits from my former employer's 401(k) plan. It is my understanding that the plan is terminating.

I worked for this employer from 12/98 to 10/99, and again from 10/01 to 4/02. The plan was in effect from 1/99 to the present.

Thus, the plan was in effect the entire time that I worked for this employer and, despite my repeated requests for information so that I could participate in the plan, the office manager hadn't provided them to me.

In 1999, a partner in this firm came to me and said that they were terminating the 401(k) plan and not to bother with the forms.

I now learn that the plan was in effect all the time but that I was denied participation -- yet am being told that I'm entitled to a distribution.

I'm really angry and confused about this. There must be laws protecting employees from this type of misrepresentation. Any suggestions?

[MGB]

First, some terminology:

The legal type of plan that this is is called a profit sharing plan. "401(k)" is just a feature within a profit sharing plan that allows participants to contribute to the plan on a pre-tax basis. There may or may not have been other contributions to the plan by the employer. These other contributions could be matches on the employees' contribution or be direct contributions (e.g., profit sharing) not dependent on the participants' actions. The direct employer contributions may be mandatory (written into the terms of the plan to always occur) or discretionary (e.g., wait until the employer knows they can afford it at the end of the year and make the decision then).

Many of these plans require one year of service before becoming eligible to participate. Some allow participation upon hire, but most smaller plans do not.

If the plan was started on 1/1/99 and had a year of service requirement, you would not have been eligible until 1/1/2000, but you had left by then. (Even if the plan had been in place before this, you would not have been eligible until 1/1/2000.) When you came back, you may or may not have been eligible to participate based on specific provisions in the plan of how to coordinate your break in service with service already performed before the first termination. This is probably the only place where you may have become eligible to participate, but a lot more information on the plan's provisions would need to be known.

However, it sounds like they had decided to terminate the plan before you came back from the break. It usually takes a considerable amount of time to process a termination because of paperwork and filings with the government. They may have "frozen" the plan back then without allowing any new contributions and it has taken until now to actually process the termination.

It may be that you did become eligible to participate during this frozen period, but do not have any benefits accrued under the plan (alternatively, there may be employer contributions that occurred even though you did not have the opportunity to contribute any of your own money). The mailing describing the plan termination needs to go to all participants regardless if they have a zero account balance or not.