Maintain Salary Deferral Election Forms?

[Guest TPAStacey]

I have an auditor of a pension plan asking me if there is any regulation (specifically DOL) that requires the Plan to maintain supporting documentation for employees who are eligible but elect to defer nothing out of their pay check. I've looked and can't find a regulation...has anyone here come across a regulation like this?

I guess I always thought that it was just "best practices" that the Plan Sponsor should try to maintain these forms so that they have themselves covered in case a participant comes back and tries to say they did want something taken out of their pay they have a signed document that "proves" they elected "$0".

Any help would be appreciated.

[rcline46]

It is an election form signed by the participant, whether for an amount or for -0- why would it not be saved? The DOL and IRS can take the position that without the form, the participant was not given the option to defer, and the company will have to make contributions for the participant based on the EPCRS guidelines.

[masteff]

But most employees who have a zero election are the ones who simply never returned an enrollment form. There's no mandate to track down your employee and make them sign a zero deferral election. That's simply the plan default. Now if you have automatic enrollment, then it's a different story because you'd have an active election for them to be at zero instead of the automatic default.

But don't ignore the fact that I can allow my employees to make deferral elections via electronic means (assuming I otherwise comply w/ the appropriate regs). During my 8 years of 401(k) administration, the only written election we ever accepted was from a new CEO. Everyone else was directed to the internet (even if it meant sitting w/ them personally to walk them thru how to use the website).

Oh, and a few employees w/ zero deferral are a result of suspension due hardship withdrawals; won't have a form on them because the change is automatic per the plan and law.

[rcline46]

If you are set up properly for electronic notification and election, then you have proof the employee was given the opportunity to defer.

Suspension for hardship is not the question, because you do have election forms.

The underlying precept is how do you prove the employee was given the option to defer? If using paper forms, the only proof you have is either a receipt from the employee saying they received the forms, or the form on file.

[masteff]

You prove you have proper and reliable procedures for providing the information to the newly eligible employee, not that you forced them to sign a form electing zero.

[rcline46]

I prefer to force them to sign a zero form and I also try to force spousal consent to the 0!

[K2retire]

You prove you have proper and reliable procedures for providing the information to the newly eligible employee, not that you forced them to sign a form electing zero.

Most auditors I've heard from (both IRS and DOL) want to see the signed form with the zero election, not a procedure.