Mandatory Ee Contributions

[austin3515]

Pre-tax Employee Contributions are mandatory as a condition of employment. According to sungard, these should be treated as nonelective contributions. Also, the employer makes a "matching" contribution for those employees not making the mandatory contribution.

In this particular plan, TIAA will NOT accept money unless a form has been signed by the participant. client has not been as good as they should be about forcing them to fill out the form, so there are a good number of people not making these contributions.

Can I treat this as a coverage issue? Because the participants did not make the mandatory contribution, the would not be entitled to the match. All of the people who are not making the contributions were provided with the TIAA Forms. I'm honestly not sure what they've done from that point forward but certainly no one was let go on account of this.

My other concern is that the program would not be treated as mandatory deferrals, which would mean that they would be considered ELECTIVE deferrals, which in turn means they are subject to 402g, and there are people in the plan doing the full 402g limit in a separate tda.

[J Simmons]

Pre-tax Employee Contributions are mandatory as a condition of employment. According to sungard, these should be treated as nonelective contributions. Also, the employer makes a "matching" contribution for those employees not making the mandatory contribution.

In this particular plan, TIAA will NOT accept money unless a form has been signed by the participant. client has not been as good as they should be about forcing them to fill out the form, so there are a good number of people not making these contributions.

Can I treat this as a coverage issue? Because the participants did not make the mandatory contribution, the would not be entitled to the match. All of the people who are not making the contributions were provided with the TIAA Forms. I'm honestly not sure what they've done from that point forward but certainly no one was let go on account of this.

My other concern is that the program would not be treated as mandatory deferrals, which would mean that they would be considered ELECTIVE deferrals, which in turn means they are subject to 402g, and there are people in the plan doing the full 402g limit in a separate tda.

I don't think you can treat this as a coverage issue. The ER is not operating this plan as written. The ER is not withholding the mandatory amount out of everyone's pay. The ER match might make this an ERISA plan. The way it is being operated the EE contributions are ELECTIVE deferrals. I would advise the ER about EPCRS remedy.

[austin3515]

It's definitely an ERISA plan.

[Guest Matthew Gouaux]

Call a spade a spade. The plan says that contributions are mandatory. The employer failed to make them. Therefore, the employer failed to follow the terms of the plan. (The employees may have failed to fill out a form, but ultimately it's the employer's responsibility to do the necessary to follow the terms of the plan).

The question is how to correct this. You might consider treating this as an operational failure and applying for relief under VCP. Because EPCRS doesn't provide a correction procedure for failure to make mandatory contributions, you will need to come up with a reasonable correction that makes the plan and the participants whole and, ideally, is similar to another correction procedure for a similar operational failure. If mandatory contributions were not withheld from employees’ paychecks, that might be viewed as similar to failure to implement a deferral election. Thus, you might suggest a corrective contribution (from the employer) equal to 1/2 the mandatory contribution that should have been made, and a matching contribution on 100% of the mandatory contribution that should have been made. As part of the VCP submission, you might also offer to either deduct the other 1/2 from employee paychecks (to the extent permitted by state law), or permit affected employees to elect whether or not they want the other 1/2 deducted. Most importantly, the employer will need to promise the IRS that it will be good from now on and adopt procedures to make sure this never happens again.

(I'm assuming that your statement that the matching contribution is made for employees NOT making a mandatory contribution is a typo and that the plan actually says that the employer matches mandatory contributions. This would be consistent with what I've seen in other TIAA-CREF 403(b) plans).

[austin3515]

(I'm assuming that your statement that the matching contribution is made for employees NOT making a mandatory contribution is a typo and that the plan actually says that the employer matches mandatory contributions. This would be consistent with what I've seen in other TIAA-CREF 403(b) plans).

Yes, typo.

I'm not sure I agree with your correllation to the elective deferrals, where people were not afforded the opportunity to defer, because these people WERE allowed to make the contributions.

[Guest Matthew Gouaux]

You're right, these employees were allowed to contribute, so this is not a failure to provide an opportunity to defer. The correction I suggested is for failure to follow a deferral election. When an employee is not given an opportunity to defer, you use ADP as a proxy for what the employee would have elected to defer. When a deferral election is made, but not followed, a proxy is unnecessary. So instead of contributing 1/2 of the ADP, you contribute 1/2 of the actual percentage or amount elected.

In your case, assuming the plan specifies the mandatory contribution percentage, you know how much whould have been contributed had the problem not occurred. In my view, it makes no difference that the participants had an opportunity to fill out a form authorizing mandatory contributions, because could not have opted out of making those contributions or elected to contribute more or less than the percentage specified by the plan. (I'm assuming this plan specifies a percentage. I've never seen a plan provide for mandatory contributions without specifying the percentage. If employees can elect the percentage, then arguably the contribution is not mandatory; if there is a minimum and employees can elect a greater percentage, then arguably anything above the minimum is an elective deferral.)