employer didn't make non-elective safe harbor contributions?

[Guest BigQuestion]

Earlier this year I left a small business after working there for 7 years.

We had a 401k plan there. I once overheard the 401k administrator explaining that it was a safe harbor plan and so there was a mandatory 3% contribution per person. I remember it very clearly because a few days later we had a staff meeting and the company owner explained the 3% contribution as a generous gift by him. I just thought it was hilarious that he tried to make himself out to be Santa Claus.

I only just realized today that the 3% contribution was made only once in the 7 years I was there. Is my former employer in violation of the law?

Some facts that may or may not be relevant:

(1) I usually worked only about 30-35 hours per week at this job - I had children at home at the time and this job allowed me to be with them after school.

(2) There were a few months over the summers in the third and fifth years when I worked less than 20 hours per week.

(3) I never made any contributions myself - my husband makes a lot more money that I did and his employer offers a truly generous match.

(4) While there might have been a handful of weeks during the 7 years that I did work 40 hours, those were rare. For no period of time did I consistently work 40 hours per week.

NOTE: if it had ever been communicated to me that the plan had changed to a match instead of an employer 3% contribution, I definitely would have contributed to get the match.

Is my former employer in violation of the law?

If so, what remedies do I have to receive the funds that I am due?

What kind of legal/IRS consequences would there be for my former employer?

I don't exactly hate my old boss, but he did cheat me in other ways that I have no way to prove. So, if under the black-and-white letter of the law, he owes me money in my 401(k), I'm inclined to press this issue. At the same time, however, if this were to seriously disrupt his own retirement plans or those of the remaining employees, I don't know that I'd go that route over just a few thousand dollars.

[ETA Consulting LLC]

You "MAY" be on to something. You should obtain a copy of the plan's Summary Plan Description (SPD) that would explain all the provisions. That will given an apples to apples comparision of what actually happened and was should have happened. If that SPD explains that the 3% will be given each year, then you have a valid issue.

Good Luck!

[david rigby]

Other thoughts:

- did you receive an individual statement showing your account balance, ever?

- as implied above, a safe harbor plan is not required to be safe harbor every year, so there should be some other documentation (SPD or otherwise).

[Bird]

As long as you worked 1000 hours in a year, once, you would have satisfied eligibility to be in the plan, and then once in, dropping under 1000 hours in a year would not have kept you from getting the 3% safe harbor contribution (it sounds like you worked over 1000 hours every year anyway).

There should have been notices at least once per year about the safe harbor contribution and whether it would be made. Unfortunately those notices are not always distributed. The SPD might only have vague language that the safe harbor "might" be made so the annual notice it really the key to knowing.

Some sleuthing might be in order. You can find and look at tax returns here (at least the last two years): EFAST filing search to see if significant employEE contributions were made (that would be a strong clue that SH contributions were made).

You may have to get a little bit...not nasty, but forceful, with your former employer in your request for information. You can ask the "plan administrator" that you mentioned but keep in mind that that person or company is just a third-part providing compliance assistance and ultimately your employer is almost certainly the "Plan Administrator" who is obligated to give you these answers. Good luck and feel free to write back.

[Guest BigQuestion]

Hey folks - thanks for your input so far. In answer to your questions:

- Yes, I worked at least 1,000 hours each year.

- Yes, I have received quarterly statements, but I didn't look at them. In part because I figured I was being screwed over, but it would not have been good at all to try to raise the issue while I was there.

My balance has always been only about $1,000. I guess a contribution was made once and that was it. However, $1,000/0.03 = $33,333. I didn't make a lot of money there, but I made a more than $33,333 over the entire 7 years!

I did get a copy of the SPD today by email. It says that it "reflects the plan options as of January 1, 2006." I joined the company in August 2004 and was eligible for the 401k after 1 year of service.

It does state, "The safe harbor contribution will be a match of 100% of the first 4% of salary deferral." I'd never read that statement until today.

It also says "your employer may make matching contributions" and it says "your employer may make a profit-sharing contribution." There's also "NOTE: in years when your employer makes safe harbor contributions, your employer will not make the matching contributions."

HOWEVER, I told repeatedly that we didn't have a 401k match, but my employer - at least once - made a contribution to my 401k.

I am 100% certain that this was NOT a profit-sharing contribution. That would that not at all be in his character.

(Don't know if this is relevent, but this business is sole proprietorship, not a corporation or LLC.)

Also, I never received annual notices about the safe-harbor contribution and whether it would be made.

I pulled-up the Form 5500's for 2010 and 2009.

2010 numbers

Total plan assets (beginning of year) $276,000; (end of year) $324,000

Contributions from:

(1) employer: $7,400

(2) employee: $10,700

(3) others (including rollovers): 0

2009 numbers

Total plan assets (beginning of year) $202,000; (end of year) $276,000

Contributions from:

(1) employer: $7,600

(2) employee: $10,700

(3) others (including rollovers): $52,000

(NOTE: I've modified these numbers a bit for privacy reasons)

So... was I just screwed out of a match because I was lied to? If so, is the one-time contribution any kind of proof of deceit?

Is my not getting the annual safe harbor notices a factor in this at all?

Perhaps I signed an acknowledgement of receipt on a prior SPD but never this one from 2008? Do they have to maintain proof that I signed an acknowledgement of receipt on the new one?

[K2retire]

It sounds like the plan was amended along the way to change from the 3% nonelective contribution to a match. When that amendment happened, all participants should have received either a Summary of Material Modifications or a new Summary Plan Description. Based on the SPD you received recently, that change probably happened in 2006.

If the 2006 date is correct, the sole contribution that you received would have been for the 2005 plan year. It would be based on your 2005 compensation -- and depending on the terms of the plan might have been 3% of your compensation only from the date you became part of the plan until the end of the year.

Did you ever receive a Safe Harbor Notice? The plan sponsor should distribute that every year and it would have included information about the required safe harbor contribution, whether it is a nonelective contribution or a match.

[Guest BigQuestion]

No, I definitely never received any Safe Harbor Notices.

I'm pretty certain that I never received a Summary of Material Modifications - I'd have combed through anything with that title.

I don't remember ever receiving a new Summary Plan Description.

Are they required to maintain documentation that I received any or all of those documents?

[Bird]

Ultimately this boils down to he said/she said. You can't prove that you did not get the notice and your employer can't prove that you did (unless s/he had you sign something saying you did, which is unlikely). Your best shot at getting anything is if you never signed a form at all saying that you did not want to contribute.

From the assets and the recent contributions, it sounds like the company made some large contributions for a couple of years and then toned them down a lot. But that's just an educated guess. If so I do wonder why your contributions weren't greater. Unfortunately at some point you're going to have to bear down and either demand a lot of info or pay someone to demand a lot of info and it's awfully hard to say whether it's worth it given the limited info we have.

[Guest BigQuestion]

Can anyone answer these two questions?

(1) are they required by law to keep on file documents I signed saying that I received the annual Safe Harbor Notices?

(2) are they required by law to keep on file documents I signed saying that I received either a Summary of Material Modifications or a new Summary Plan Description?

[K2retire]

They are not required to have you sign either of those things. It is good practice to do so (for the very reasons you're discovering) but there is no requirement to do it.