Employer failed to deposit my 401k funds

[Guest frogman]

Every month for the past two years, I contributed to my 401k. This past month, I finally got a 401k statement from my employer and discovered she did not deposit any of the money taken out of my paycheck. After I brought it to her attention, she deposited the funds. The disagreement comes about because she insists on correcting the interest lost by utilizing the IRC 6621 method and providing only 1% interest per year. Is this right? PLEASE HELP!!

[GBurns]

Since salary deferrals etc are deposited in an investment account, How come you did not get any statements from the investment vehicle during this period?

[david rigby]

Re-read a copy of the plan's Summary Plan Description (SPD).

[Bird]

Just curious, pax, but what would this person be looking for in the SPD? As someone in the business, I found your comment, mmm, shall we say, interesting in its unhelpfulness. I can't imagine what frogman would make of it.

Are you saying "get lost"? I'm relatively new here and may need a translator.

Frogman, were your contributions supposed to be deposited into a self-directed account? It doesn't necessarily matter but it might provide some helpful background info.

[david rigby]

Don’t mean to imply “get lost”, rather suggesting a place to begin. Reading the SPD will provide frogman some help, whether or not we specify what he should look for.

But, try this: the SPD might give some information related to the deposit of employee contributions (and employer contributions, if applicable): when, where, etc. It may not be extremely detailed, but the SPD is the place to start. In addition, the SPD will give some information about the plan's claim procedure. Is this a "claim"? I don't know, but read it and find out.

The Form 5500 requires reporting of delinquent employee contributions. See

http://www.dol.gov/ebsa/faqs/faq_compliance_5500.html

As a plan participant, frogman can request a copy of the 5500 for all years in question. BTW, your employer can charge you a per-page copying charge for this.

Also, look here for more information

http://www.dol.gov/ebsa/consumer_info_pension.html

[GBurns]

The problem with reading an SPD is the inclination of the "unknowledgeable" or "unprepared" reader, to accept what is in it as being true and acceptable. For example, an SPD that says that the employer can deposit salary deferrals whenever they choose etc might give frogman the idea that this is acceptable and that there is nothing wrong nor anything that can be done.

So before reading the SPD or Plan Document etc, frogman would be well advised to do some research first starting with the links given by pax then moving on to sites that can be found using Google such as :

www.401khelpcenter.com

[could be me maybe not]

frogman, you need to contact the USDOL now. Your employer needs to get a "random" audit. Now.

I happen to despise the DOL's frenzied, aggressive, unprofessional (IMO) behavior.

But here is one situation in which they could actually do good.

[Bird]

pax, thanks for the feedback. The claims section might be of some use but in general I don't think this particular problem will find a good solution in the SPD.

I was wondering if people were avoiding the obvious, but could be maybe not has come right out and said it: if you want to put your employer through living he** call the DOL. frogman, I would do this as a very last resort. Those of us who administer plans could give you horror stories that might be better used as a threat.

pax gave you some sites; you might check this one too:

http://www.dol.gov/ebsa/faqs/faq_vfcp2.html

This gives details on how to calc earnings on late deposits and other correction guidelines. To my knowledge, the 6621 rate has not been under 4% in the time period over which this happened.

[Belgarath]

Frogman - one thing to keep in mind - which you probably already have! You need to consider very carefully how far you want to pursue this. If you complain to the DOL, and they investigate, based upon the limited information available it seems reasonably certain that you will receive additional earnings.

Now, you don't mention how much you deferred, but it's certainly possible that you are talking about a relatively small amount of earnings. You are then faced with the issue of whether a couple of hundred dollars in earnings (or maybe less?) is worth jeopardizing your relationship with your employer. There's a big difference between pursuing your administrative remedies under the SPD, as Pax mentioned, and calling on the big dogs of the DOL. Some of the information given to you here may enable you to present a reasonable argument that the employer will accept, without undue unpleasantry.

I'm by no means counseling you not to fight for your rights here, nor am I advocating a big fight. I'm merely suggesting that you weigh the pros and cons of any action. The simple fact is that in most cases, the employer holds all the cards, and if they are vindictive types, then calling in the DOL will almost guarantee future misery for you. I've seen it happen. Sometimes it is worth it (especially if you have no intention of long term employment there) and sometimes it isn't. Best of luck however you go about it.

[alanm]

As under Rev Proc 2003-43, the correction is specified to be the 6621 interest rate which has never been 1%; over the last two years it has averaged 5%.

And I quote from the DOLs code of federal regulations:

EBSA (formerly PWBA) Final Rule

Regulation Relating to Definition of ``Plan Assets' --Participant Contributions; Final Rule [08/07/1996]

[PDF Version]

Volume 61, Number 153, Page 41219-41235

[[Page 41219]]

The interest amount is to be measured by the

greater of (1) the amount that the participant contributions would

otherwise have earned from the date of withholding or receipt by the

employer until the date of transmission to the plan if the

contributions had been invested during such period in the investment

alternative available under the plan which had the highest rate of

return, or (2) the underpayment rate defined in section 6621(a)(2) of

the Internal Revenue Code applied to such period.

IRC 6621(a)(2) (the Federal short-term rate, determined quarterly), plus 3 percentage points. [iRC 6621(a)(1)(A) and (B)].

[david rigby]

Belgarath's comments are important, and well stated. Let me add another: if the employer has been engaging in the action summarized in the original post, there may be bigger problems looming, such as the financial viability of the company. It would probably be prudent to proceed toward getting the plan "straight", perhaps in a polite "non-audit" manner.

[could be me maybe not]

Fair enough; good advice. But, frogman, walk tall in clearing this up knowing that you have a big stick.

[JanetM]

could be me maybe not,

That is good advice, but not too helpful if the big stick gets a pink slip. Am guessing employer has financial difficulties or they are not money savvy enough to run a growing busisness.

If the employer is just small business and goes bankrupt, the participants may never collect their plan balances that weren't deposited. (they get to stand in line with other creditors).

I would try the honey method first, find out if the employer is "using" the cash to run the business or if they just don't have a clue what they are doing.

(years ago when I was TPA - guy came in to see about getting 5500 filed. He went to the bank and checked the boxes on the prototype doc and got a trust account set up. Once a month he send check to the bank. The put it in the money market thinking it was single participant and he would get investments set up. They reminded him he needed 5500 since assets were over $100K. He comes to me and I find out this is three year old 401(k) with profit sharing. There were 6 participants in addition to the owner. Spent a month redoing this to find out what balances for each person should be. The guy was honest but not to money savvy.

[actuarysmith]

If I am not mistaken (happens alot though........ ) a plan participant can contact the DOL on a confidential basis and file a complaint about untimely deposits.

It would still be better to try and pursue your own remedy working with the employer, unless you are talking about a great deal of money.

[could be me maybe not]

Not specific to frogman's situation, but I'd love to hear the outcome of legal action taken by somebody fired for contacting the DOL about late 401(k) deposits. Aside from private lawyers, I'd bet some of the DOL activists would just drool over the though of punitive action in such a case.

Can anybody out there intelligently comment on the possibilities?

[david rigby]

Don't expect many attorneys to go after punitive damages unless deep pockets are visible.

[mbozek]

Stop your drooling. There are no punitative, consequential or compensatory damages permitted under ERISA because it is a statute in Equity. 510 liability is difficult to prove.