Exclusion of eligible Employees in 401k -sort of

[Guest rfemmons]

Plan sponsor adopted 401(k) in 2000. Changed TPAs and prototype plan sponsor in early 2006.

Didn't understand the process and thought it was "adopting new plan" and wanted safe harbor. Found out

that it could do that because of the notice provision until 2007. Owner of plan sponsor was informed by TPA that he could also adopt Simple 401(k) year for 2006 thereby allowing himself the opportunity to defer the most. The TPA told them that instead of deferring to the 401(k) for the year the employees would simply contribute to the Simple 401(k). So, no elective deferral contributions were made for 2006 to 401k.

Now, the TPA has sent a letter to the plan sponsor stating that it believes that there was a plan compliance problem because no contributions where made to the 401(k). The employees never revoked their elections to the 401(k) when they decided to defer to the Simple 401(k). I agree that there was a failure to follow the plan document but what is the remedy? The employees still deferred to another plan sponsored by the employer.