what do you do if DOL orders employer to pay overtime

[k man]

client was ordered by DOL to pay overtime to employees for prior years. the actual backpay was done in 2008 but was for 2006 and 2007. do you have to open prior years with regard to the plan calculations (i dont think so because the compensation is paid in 2008 not the prior years. Also, what do you do about 2008?

[Ron Snyder]

If the DOL orders an employer to pay overtime, it should pay overtime. However, whether the employer must open up prior valuations with respect to such payments depends upon the wording of the plan document, specifically the definition of compensation or included compensation. If that definition is based on W-2 compensation, you are correct. The payments you refer to are similar to deferred compensation, earned in prior years but paid in 2008, and a careful reading and interpretation of the language is needed.

You didn't mention what type of plan the employer maintains: DB or DC. I would think it could be a bigger problem for a DC plan than for a DB plan, since it would either result in the employer's making an additional contribution for the prior years or in reducing the account balances of some employees (which would be problematic to the DOL).

For a DB plan it is largely a matter of determining the correct accruals for the years in question, and the correct distributable benefits for vested terminees, and those can always be corrected with a little (or a lot) additional money.

[BG5150]

And IF it's a 401(k) plan, and IF overtime is included in comp, what do you do about participants' 401(k) deferral elections. Do you withhold them and the rate they were using in the old plan years?

[david rigby]

Doesn't this depend (a lot) on the exact terms of the DOL order? Is the plan part of the order?

In the original post, the back pay was for 2006 and 2007, but paid to EEs in 2008. When is that part of the EE's W-2? If it's 2008 W-2, can the plan modify anything for a prior year?