Failure to re-start deferrals, post hardship

[Guest Scott Foreman]

There are so many detailed questions on this forum, I wish there was a thread for 'bone headed' questions that I should know the answer to already.

An employer failed to restart deferrals following an employee's six month hardship 'suspension.' The employee still has a valid deferral election in place. What is the correction method for the company?

Thank you,

Scott

[jpod]

A correction may or may not be necessary. Does the plan say that re-charging will be automatic, or does plan say that the participant must take some affirmative action, such as completing a new election? If the plan document is not clear on this point (and it probably is not), has there been a consistent practice one way or the other? What has been communicated to participants on this issue?

[Guest Scott Foreman]

Jpod, thank you for the quick response. As you surmised, the plan document is not clear on whether or not a new election is required. We wanted to err on the side of caution by saying that the employer must restart deferrals per the employee's deferral election form. To my knowledge, this company has never failed to restart deferrals so I cannot comment on consistent practice. As for communication to the participant, the employer has asked the participant what they wish to do and have yet to hear back from him. However, having already missed several payroll periods before speaking with the employee it would seem as though the company is liable for the 'missed deferrals.'

It would be easier if my assumption was incorrect, but we want to do the right thing by the employee. Again, thank you for your help.

Scott

[PensionPro]

[jpod]

Unfortunately, the "right thing" and what the IRS requires to correct a failure to implement deferral elections (i.e., an unjustified windfall for the employee in the case of an unintentional failure) are two different animals.

[Guest Scott Foreman]

Jpod, than you very much for the insight. At risk of being pushy, I still don't know the correction for failure to re-start deferrals. Any thoughts?

Thanks,

Scott

[masteff]

Did it happen this year? Can you get the employee to enroll at a higher rate and then you can make sure any match that otherwise would have been made is corrected?

Matching is really the biggest issue if there's not too much time passed.

[Guest Scott Foreman]

Masteff, it did happen this year so I think increasing deferral percentage for the rest of the year is probably the best way to go. Thanks for the input.

Scott