Employer Contributions

[MARYMM]

Company put a 401(k) plan into place on 1/1/05 - that is the effective date in the Plan document. In addition to an employer match , the Plan also provides company contributions to all eligible ee's (those with 1,000 hours of service) whether or not they make a deferral contribution. The company contributions are to be made each "payroll period" - a term that is not defined in the Plan document.

The company(which pays biweekly) did not start salary deferrals until the 2nd payroll paid in 2005 (1/20/05) and they did not make the employer contributions for the 1st payroll (1/6/05). I believe that decision was based on the fact that the wages being paid on 1/6 were for time worked in 2004.

It seemed to me that the discretionary contributions were due to the ee's for the first payroll paid in the plan year and we raised that point with the TPA. They suggested we consult our ERISA attorney. The response I am getting (filtered thru the HR Director) is that we owe the ee's the matching contribution on the deferrals they should have been allowed to make for that first payroll (plus earnings) But no opinion is being given on the employer contributions.

Your thoughts ?

Thanks in advance

[Guest Pensions in Paradise]

Are you sure the discretionary profit sharing contribution is required to be made each payroll period? That is highly unusual, especially considering the plan requires a participant to complete 1,000 hours in order to be eligible for the contribution. Something doesn't sound right.

[MARYMM]

Are you sure the discretionary profit sharing contribution is required to be made each payroll period? That is highly unusual, especially considering the plan requires a participant to complete 1,000 hours in order to be eligible for the contribution. Something doesn't sound right.

Yes, I'm sure.......

Section 4.1 (i)For each payroll period, the Company shall contribute a Tier 1 contribution to the Regular Account of each Participant who has satisfied the requirements of Section 3.1(b).

Section 3.1

(b) For purposes of eligibility for Company contributions under Section 4.1, an Employee of the Company shall become a Participant on the Eligibility Date coinciding with or next following the date on which such Employee completes 1,000 Hours of Service during the 12 consecutive month period commencing on the Employee's Employment Commencement Date

[WDIK]

Section 4.1 (i)For each payroll period, the Company shall contribute a Tier 1 contribution to the Regular Account of each Participant who has satisfied the requirements of Section 3.1(b).

I'm not sure that the language quoted requires that a contribution be deposited separately for each payroll period. I could probably read it either way depending on other pertinent sections of the document.

[MARYMM]

Section 4.1 (i)For each payroll period, the Company shall contribute a Tier 1 contribution to the Regular Account of each Participant who has satisfied the requirements of Section 3.1(b).

I'm not sure that the language quoted requires that a contribution be deposited separately for each payroll period. I could probably read it either way depending on other pertinent sections of the document.

But is a contribution required for each payroll period in the plan year - regardless of when it must be contributed?

[Guest Pensions in Paradise]

You need to consult with the person who drafted the plan document. IMHO Section 3.1 does not impose a 1,000 hours requirement for the PS contribution. I read Section 3.1 as the eligibility requirement for the plan.

If you DO take the position that Section 3.1 requires 1,000 hours for the PS contribution, then the document contradicts itself. Because then no PS contributions can be made from January till June or so when participants complete 1,000 hours of service.

[wsp]

I agree with PEP.... 3.1 is more likely the eligibility provisions. Unless there is a provision somewhere in section 4 that limits the contribution to those who have reached 1,000 hours you've likely got a document that provides a contribution to everyone; even those who have termed. Because it reads like that I would interpret the document to read that the contribution must be deposited after each payroll. Which makes sense as you don't want residual distributions all over the place.

Look around section 4.4 to see if there are any hours or end of year requirements. Verbage should read something along the lines of "Only Participants who have completed a Year of Service during the Plan Year and are actively employed on the last day of the Plan Year shall be eligible to share in the discretionary contribution for the year."

There should be a section either just before or just after that should tell you when the accounts should be credited and the timing of the payments. That's going to tell you whether they have to be calculated and deposited on a payroll by payroll basis. The calculation of the accounts and the timing of the payments can be two entirely different periods.

[austin3515]

I agree with PIP too. I'd bet the farm there's no last day/1,000 gour rule. Although there will almost certainly be a section entitled "Timing of Deposits" it is clear that there should be multiple deposits during the year. But 3.1 definitely relates to initial eligibility. More likely than not, the document is a Corbel volume submitter based document, and all the Corbel Docs have eligibility in Section 3 and Contributions in Section 4.

No way an attorney who drafts documents on a regular basis (or even occassionally) would have allocation conditions following Section 4.1.

Finally, the "match on the missed deferrals" for 1/6 assumes that eligible employees were excluded from deferrals, when they should not have been. To this, I would suggest that an argument could be made that these earnings relateed to 2004 based on the "de minimis" rule in reg 1.415 something or other. Do a search for "de minimis" in each of the 415 regs and you'll find it somewhere. I've seen EXPERT ERISA attorneys make this claim despite the plan's use of W-2 wages.

[MARYMM]

You need to consult with the person who drafted the plan document. IMHO Section 3.1 does not impose a 1,000 hours requirement for the PS contribution. I read Section 3.1 as the eligibility requirement for the plan.

If you DO take the position that Section 3.1 requires 1,000 hours for the PS contribution, then the document contradicts itself. Because then no PS contributions can be made from January till June or so when participants complete 1,000 hours of service.

Yes, PIP, I agree with your interpretation - it is the eligiblity for the Plan. Once the ee is eligible he/she should receive the PS contribution.

So, should the company have made a the Tier 1 contribution to the eligible employees for the 1st payroll paid in 2005 ? The controller and I can't understand why a match contribution would be due for that payroll and not the Tier 1 discretionary.

[austin3515]

I think it was me who said (I added the brackets to clarify):

Finally, the "match on the missed deferrals" for 1/6 assumes that eligible employees were excluded from deferrals, when they should not have been [the "match" is the correction set forth in EPCRS for this type of failure]. To this, I would suggest that an argument could be made that these earnings relateed to 2004 based on the "de minimis" rule in reg 1.415 something or other. Do a search for "de minimis" in each of the 415 regs and you'll find it somewhere. I've seen EXPERT ERISA attorneys make this claim despite the plan's use of W-2 wages.