TPA responsibility for late 401k deposits

[Guest Stacey Richard]

Does anyone know the TPA's responsibility for late 401k deposits, beyond informing the client? If the deposits are extremely late, does the TPA have any responsibility to participants? Any experience with this?

Thank you!

[jpod]

Do you mean "responsibility" in the sense of direct liability under ERISA or for the excise tax under Section 4975 of the IRC? If so, it depends why they were late in being deposited to the Plan's trust account and the TPA's role in the late deposit.

Do you mean "responsibility" in the sense of the TPA's obligation to indemnify the plan sponsor for its liabilities attributable to the late deposits? If so, that would depend upon a variety of factors pertaining to the TPA's arrangement with the plan sponsor.

[mbozek]

Does anyone know the TPA's responsibility for late 401k deposits, beyond informing the client? If the deposits are extremely late, does the TPA have any responsibility to participants? Any experience with this?

Thank you!

What is the TPA's responsibility for monitoring late contributions under its agreement with the employer?

What is the cause of the late contributions, e.g., failure of the employer to transfer the contributions.

Why aren't the contributions transferrred automatically on payday?

[Guest Stacey Richard]

Employer's new HR person knew nothing about payroll. She was told repeatedly to deposit the funds ASAP, and she did not. She blocked all communication to owner--not sure if this was at the owner's direction or not. Communication then sent to owner's home.

The client wants to change all providers - TPA, and brokerage. It seems they think new providers will get them out of paying the tens of thousands owned to participants.

What is the responsibility of the TPA to participants, DOL/IRS? Anyone had any experience?

[MoJo]

I think the answer depends on whether or not the TPA performs in an capacity as a fiduciary (not what they say they are, but what they actually do - and my experience is that some (many?) cross the line occasionally). If they are a fiduciary, then yes, they have a responsibility to correct the breaches of other fiduciaries, including turning the employer in to the DOL.

A few years ago, the DOL attempted to "deputize" many service providers arguing that they had a responsibility to turn in employers with late deposits. Not sure if they ever attempted to enforce such a "mandate" and doubt it would have been successful.

Now, does the TPA have a moral obligation? We can argue about that - but in my mind, if the TPA hasn't taken all necessary steps to get around the gatekeeper, then I as an client (or consultant, attorney) would not think very highly of the TPA (to whom I would look upon as one charged with keeping the client out of trouble).

[Peter Gulia]

We’d like to believe that a non-fiduciary recordkeeper shouldn’t have to be the one to police the plan fiduciary, but ....

For some related points, see these threads:

http://benefitslink.com/boards/index.php?showtopic=50132

http://benefitslink.com/boards/index.php?showtopic=49482

[Below Ground]

My 2 cents is that "it depends". I know that sounds like a cop out, but it is not. I suggest that it is different for every TPA, depending upon the way your service is defined.

Ask yourself what is it that you can do. Do provide funds for deposit? Do you control the timing of deposits? Did you advise the plan administrator of what "being late" means? Did you advise the plan adminstrator that deposits where in fact late? Did you offer assistance for correction? If you have no power to effect a situation, how can you be responsible? That is the bottom line for the situation.

Experience...

We have a client that was very late, repeatedly. We told them they were late. We computed lost earnings. Did 5330. Offered to do VFCP Filing. They were audited by BOTH IRS and DOL. When they tried to lay responsibility on us with a private attorney we showed documentation defining our service role, and the actions we had taken. That ended the issue for us. I note that our role never was an issue with the audits, just the client trying to shirk responsibility.

You do what you can, and document everything.