Failure to Include Participant

[Randy Watson]

Company A's 401(k) permits the employees of Company A's affiliates to participate in the plan. Company B (an affiliate of A) was formed in 2004 and it adopted a 401(k) plan of its own with a more generous match than Company A's plan. However, employees of Company B were never offered participation in Company A's plan (by mistake of course). Does this have to be corrected?

The reason why I ask is because the benefit that the Company B employees received was better (matching contribution) than the benefit they would have received under Company A's plan. There is just no way that deferring under Company A's plan would be better. If there was no harm, can't we just amend Company A's plan to exclude Company B employees prospectively? Would it make a difference if Company A's plan permitted hardships or had more distribution options than B's?

[Guest Pensions in Paradise]

Did Company B actually adopt the Company A plan as a participating employer? Or does the Company A plan just say that affiliated employers may participate in the plan?

[Randy Watson]

Company A's plan just says that employees of affiliates are eligible to participate.

[Guest Pensions in Paradise]

It doesn't sound like Company B actually adopted the plan. Could you post the exact language in the plan concerning the definition of employer and plan sponsor (if your plan has that definition).

[Randy Watson]

Why would Company B have to adopt the plan?

[Guest Pensions in Paradise]

Because if Company B never actually adopted the Company A plan, the employees of Company B are not eligible to participate in the Company A plan. Seek ERISA counsel.

[Kirk Maldonado]

If my memory serves me right, standardized plans require coverage of all members of the controlled group. Thus, the employees of Company B should have been covered by the plan sponsored by Company A, even if Company B never adopted the plan of Company A and even if the benefit under Company B's plan is more generous. This assumes, of course, that you are dealing with a standardized plan or some other type of plan that mandates coverage of all members of the controlled group.