ethical dilemma

[K2retire]

I work for the TPA division of a company that has a number of other functions. The TPA division is part of the retirement plan and wealth management group that includes both broker/dealer affiliations and RIAs. Although I report directly to the president of the retirement/wealth mgmt. group, the VP of the group is certainly in a position of higher authority than I am within the company. I'm posting my question here rather than ASPPA message board because I don't want my name identified with the question.

Recently one of the VP's plans discovered that they have not been operating in accordance with the provisions of a two amendments, one effective 1-1-2011 adding QACA, the other effective 7-1-2010 adding automatic enrollment. Both amendments specifically called for automatically enrolling any participant who had not completed a contrary election. The investment house that began handling the enrollment forms for them at the time of the 7-1-2010 amendment coded the amendment wrong and only enrolled new people. The client is looking to see how many enrollment forms they have on file from before the investment folks took over this responsibility. The investment house has identified up to 90 participants for whom they have no election on file.

This is a large plan, in the midst of a 2010 audit for their 5500. The auditor has not noticed this, nor asked any questions about the automatic enrollment process yet. I have been instructed by the VP that this is his plan, and I am not to say anything to the client, nor the compliance staff that reviews my work about the 2010 error. He intends to correct only the error for 2011.

I'm looking for something stronger than my own opinion or my possible issues with violating ASPPA's code of ethics, to explain to this VP why he can't just pretend he doesn't know about this.

[ETA Consulting LLC]

K2retire, you have an interesting situation. It is an imperfect world. I would suggest maintaining a perspective on the roles and responsibilities of your position relative to other positions within the company. As a professional, you rendered your expert analysis to the appropriate authority within the firm who (as a result of his incompetence, among other things) chose to disregard it. I would maintain documentation and let sleeping dogs lie.

Now, with respect to the failure to operate the plan pursuant to the written terms, there is a correction (under VCP, of course), that even though the provision was written to apply to everyone, it was operated to apply only to new employees. The application was applied consistently and merely the result of a clear misinterpretation of the document. The IRS would typically look at the facts and circumstances and conclude that the violation was not eggregious and the interpretation itself was not arbitrary and capricious.

I've seen worse, and was no less disgusted than you are. Not to go religious, but sometimes it helps to pray: "Dear Lord, please grant me the courage to change that which I can, the serenity to accept that which I can't, and the wisdom to know the difference".

Good Luck!

[MSN]

It doesn't sound like you were forbidden from discussing this with the auditor. If you're worried, send an email from a personal email account providing an unsolicited tip and ask the auditor to keep the tip private.

If the VP is part of the wealth management group, they could have policies and procedures for reporting this type of activity that you should look into as well. You should be able to report the behavior without fear of retaliation. As the head of compliance for a firm, I promise you I would want to know about this and would take steps to protect you if you provided the information to me against instructions.

Good luck!

[K2retire]

At this point, I have decided not to do anything until we learn how many of these people have elections on file with the employer that were never forwarded to the investment guys because they elected not to defer. (No sense panicking prematurely!)

Unfortunately, the auditor seems to be very inexperienced, so even a tip to her is unlikely to produce any results. The population of participants who should be corrected, if any, should be nearly identical for both years. So they are more likely to notice it with next year's audit when they see the correction for this year.

When I was hired, the President of this group indicated that he was relying on me to let them know if there were things that they were doing that ought to be changed. He has reminded me of that several times. If it becomes necessary to pursue this further, that is the opening I plan to use to bring it up jointly to the President and VP.

And yes, learning to accept that which I cannot change is a life long goal/challenge of mine!

[david rigby]

An email? You're kidding, right?

IMHO, go directly to the president. If the VP screws up and gets fired, your company and/or innocent other employees may also suffer. Better to let the Pres know that there might be a compliance problem (it's also possible that you don't have all the facts).

It's always best to take the high road.