401(k) payroll deductions and employer match

[Guest Leo]

Seven months ago my previous employer deducted two months contributions from my paycheck but did not deposit it into my 401(k)account. Furthermore, when I requested that my account balance be transferred to a new account sponsored by my current employer, only my contributions were transferred. The employer match balance was not. I am fully vested in the account. My previous employer stated that they did give me the balance of the employer match because they made a mistake. Apparently they just learned that they did not have to deposit the match unless they were profitable. Hence, they stated on the transfer form that I was 0% vested knowing full well that I was fully vested. Others who have left the company received their full account balance.

What are my options?

[Guest]

I can't tell from your message exactly what has happened.

for instance, if this is the first year you received a match, and the document says that match is conditioned on being there the last day, or 1000 hours requirement, then you might indeed not be entitled to the current year match - regardless if a match is deposited during the year.

you should have an SPD (Summary Plan Description) that should tell you about the match. if you don't have one, you are entitled to one on request.

I believe any grievence procedures will also be outlined in the SPD.

start there.

I have never seen a document stating that they must be profitable to make a match - though that doesn't mena it can't. In the old days some profit sharing plans had a formula which read, for example, "10% of profits", but again, I never have seen one of those, only read about them. If anyone else (currently active at your old company) received a match during the year, then it sounds like you may indeed have a grievence.

[Jon Chambers]

Actually, a net profits requirement for a match is not that unusual, when the match is funded annually and is fully discretionary. But I agree that the facts here are confusing. There are many reasons why a participant might not get a match. No match in general, last day requirement, 1000 hours, etc. It sounds as though Leo got a match, but it wasn't distributed. If that's the case, and he's vested, he has a legitimate grievance. Perhaps the match was accrued but not funded, so distribution is delayed. We're just speculating without more information and the SPD.

[Guest Leo]

There are actually two issues:

The first is that they deducted money from my paycheck and didn't deposit it to my 401(k)account.

The second is that the employer match, that was funded and in my Prudential account, was not distributed as requested. The SPD does not discuss anything about profitablity. The profitability issue is stated in the Plan Adoption Agreements. When I spoke with Prudential, they stated that the employer match fund were returned to the employer (forfeiture) because they were told that I was 0% vested.

I have talked to the Dept of Labor but the wheels of government turn so slowly...

[Guest Chiam]

Can an employer choose to deposit matches in a SIMPLE IRA plan at different times for different employees or does he have to deposit at the same time for each employee? Code Sections?? Regs.??

[Jon Chambers]

Thanks for the updated info Leo. Sorry I didn't see your update earlier.

I have the following observations:

1) Most courts have held that the SPD governs over the plan document, since the document was never communicated to employees. So keeping the "net profits" language out of the SPD probably means that your former employer doesn't get to use that provision as an out. Unfortunately, it may take DOL litigation, or a suit on your behalf, to get your former employer to acknowledge this issue.

2) Your former employer probably breached their fiduciary responsibility to operate their plan in accordance with its terms by reporting you to Prudential as 0% vested. If Prudential knew that you are in fact vested, they may share co-fiduciary responsibility for treating your account fairly. This depends somewhat on the nature of their fiduciary relationship with the plan. For example, if they are trustee, that imparts more responsibility than if they are just the custodian. You may want to talk to Prudential, mention the co-fiduciary liability rules, and see how they react.

3) Forfeitures of match can't be returned to the employer. This would be a prohibited transaction. They can be used as an offset against future matching contributions. If Prudential returned plan assets to the employer, they almost certainly breached their responsibility.

4) If money was deducted from your paycheck, and not deposited, the DOL should help you recover these funds (with earnings). Unless your former employer is bankrupt, it should just be a matter of time and persistence to get these matters addressed, because the facts seem to be on your side.

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Jon C. Chambers

Principal

Schultz Collins Lawson Chambers, Inc.

(415) 291-3004

[Kirk Maldonado]

I agree with everything that Jon stated, but I want to emphasize something. My experience is that the DOL is quite aggressive about going after employees that don't forward employee contributions to retirement plans. Also, they will pursue these employer even if the total amount that wasn't forwarded is a relatively small amount (e.g., under $10,000). I predict that you will find that the DOL will be very helpful in assisting you to get your money.