Is the effective date on the enrollment form a big deal? What about the amount to be deferred?

[Guest DIGMYDOG]

Please help us resolve a little discussion in our office. Here's the situation:

New Plan that used to have a simple plan. Effective date of the plan is 1/01/04. The first payroll (paydate) for 2004 plan year is 1/04/04 (for payroll end 12/31/03). Some enrollment forms completed and dated as early as 11/19/03, while most completed and dated 1/08/04.

While checking the enrollment forms against the payroll information, I found that pretty much everyone's deferral amounts were different than what they specified on their enrollment forms. There were only three that were actually equal to what the enrollment form speciefied.

I found out that the payroll service had not gotten any of the enrollment form information for the 401(k) plan by the time the 1/04/04 payroll was to be paid. They were still using the old simple plan's elections. The service is reporting the correct type of plan under the deferrals (401k), just the amount did not match what the enrollment forms specified.

What about the dates on the enrollment forms? Should the individuals, who do not have a timely enrollment form on file, be able to defer for paydate 1/04/04?

Is this a "big deal". Some people here think it is while others think it is not.

Any thoughts on this?

[ccassetty]

I would do a little more digging first.

Why didn't the participants complete the forms before 1/4/04? Lack of opportunity or the participants just didn't get around to it?

Was the SIMPLE plan amended to the 401(k) or is the 401(k) a totally new plan?

Where the employees told that their SIMPLE plan elections would continue to be used unless they elected otherwise?

Based on what we know so far, the amounts designated on the forms signed prior to 1/4/04 should definitely have been the basis for the deferral amounts for pay period ending 1/4/04. Although there is usually some sort of deadline built into the forms (i.e., they must be received no later than 5 business days before the end of the pay period to be effective for that pay period)

The ones signed after that date would not be effective until the pay period after their signature. These are the ones that could create problems, depending on the answers to the above questions.

Whatever the answers to the above, clearly there are issues about withholding the correct deferral amounts. Since it was discovered pretty quickly, I don't think there is a major problem. At minimum, the employer should communicate to the employees that the correct deferral elections will be used going forward and take steps to make sure that this doesn't happen again.

If the differences are large enough, the employer could consider allowing the employees to make a special election to adjust their deferrals going forward as a result of the incorrect amounts being withheld. I don't believe the employer needs to "make up" any thing.

[Brian Gallagher]

Can you really go by date signed? What if I signed my form on Dec 15, but didn't get it to human resources 'til the 28th?

[ccassetty]

Your right, the date received by the employer is the key, I was just assuming that there was little or no delay between signature and turn in. However, were the forms time stamped or some records kept of the dates they were received? If not, I think there is little choice but to go by the signature dates when cleaning this up.

[ccassetty]

One more thing, my suggestion about the extra opportunity to change deferrals would apply only if the plan has a restriction on the frequency of deferral election changes. If the participant can change at any time, then the employer could simply point out that the participant has the option to adjust deferrals as a result of the incorrect amounts being withheld.