participant directed investements

[MJ Hartman]

a quarterly valued 401k/profit sharing plan allows for participant directed investments. a quarterly deposit made on behalf of one of the doctors was made to the money market fund in the last quarter of 2002 and was reported as paid to the money market fund for the 12/31/02 participant statement. Subsequent deposits were paid and shown on statements prepared 3/31/03 and 6/30/03 as being paid to the money market.

After 3 timely statements had been provided to the participant (and a good return on the equity fund account that was where the money was supposed to have been paid all along) the participant calls and says that his $ was being paid to the wrong account!! What is the plan's obligation to reimburse for gains to the account? I believe that the only adjustments due would be for the 1st quarter that deposits were shown as made incorrectly; the plan/trustee/(tpa) is under no obligation to correct to-date as statements have been provided. Any comments, cites? thanks

[ljr]

Check the participant statements to see if there is any kind of message about a time limit to report errors. Many will say errors need to be reported within 30 days of receipt of the statement for corrections to be made retroactively. Ours go on to say errors reported after that time will be corrected as of a current date. In practice, we'd probably do a retroactive correction if reported within a "reasonable" time from receipt of the statement which would at least be prior to the issue of the following quarter.

This is a tough one and I wish you luck. Interesting that no one ever complains when they make money on an error!

[E as in ERISA]

Those may be your arguments. But I don't think that they are 100% foolproof. I think that there is no doubt that an error occurred when the plan failed to deposit the money as directed. But unless you can prove an affirmative responsibility on the part of the doctor to review the statements for your errors and notify you of such errors, then your argument could lose.

I don't know if messaging on a statement can be used to establish that responsibility on the part of the participants. I'm not aware of anything that requires participants to read statements or creates a presumption that they read statements. If they don't read the statement, then they can't get the message! So I don't know that messaging on the statement creates any legal responsibility on their part -- or that failure to so so creates an error.

I think that your argument would be more viable if it was in the SPD and all employees had signed statements that they had read the SPD (which most employers require these days).

[E as in ERISA]

Bottom line: Be very nice in your negotiations. The doctor has nothing to lose and everything to gain in forcing the issue.