changing payroll provider

[k man]

in connection with a change of payroll companies the sponsor sent out a notice 3 days advance telling participants deferrals would not be taken. is that permissible? i am concerned it might be a failure to follow deferral instructions and the employer is now liable to make up the contribution. the plan is also automatic enrollment. but on the other hand this is not a blackout as defined by the regs and therefore i am unaware of any 30 day notice requirement.

[J Simmons]

Is this being done with or without an amendment to the plan to that effect?

It sounds like a hasty move if the new payroll provider has not had the time to get the 401k deferrals, auto and elected, keyed into its system fo the first payroll it will handle.

[Pam S.]

I am in a similar situation and would appreciate any feedback. A client of ours is converting their 401k plan from ADP over to another recordkeeper and moving their payroll services at the same time (though i do not believe ADP has been informed of the payroll service change yet). ADP has informed them that the earliest they'd be able to transfer the plan's assets is September 30th. No problem - plenty of time to get blackout notices out, etc. The client processes payroll weekly. ADP indicated that they would cease processing 401k withholdings with the September 17th pay period. The new payroll company will not start doing payroll processing until October 1st. Therefore, it appears that there will be two weeks where no deferrals will be withheld. The client, and I, wonder if this is an issue if participants have an election to have 10% (for example) withheld on an annual basis from their pay - it won't be a full 10% if these two pay periods are skipped. So, we thought sending a notice to the employees explaining the situation, that there would be 2 weeks where no deferrals would occur, and if they wanted to make any adjustments to their deferral election to accommodate this conversion, they would be able to do so in writing and it would be honored by the new payroll company. Does anyone see an issue with this. It just seems very fishy that ADP would stop the 401k withholdings prior to a plan transfer. What if ADP were keeping the payroll processing piece of the business - what difference would it make to the plan? Very odd...any suggestions?