Is client in any way liable for recordkeeper's mistake?

[Guest le190]

the recordkeeper for my company's 401(k) plan incorrectly allocated the ER match 2 years in a row. on both occasions, they have corrected those participants who rec'd too little match. those who rec'd too much match, who were not HCEs, lucked out.

my question is: can my company, the plan administrator at my company, or the plan be held responsible for these mistakes by the recordkeeper/TTEE? what would the IRS or the DOL do to us? thanks for any light shed on this subject!

[Guest Ray Williams]

You are the Plan Administrator. You are totally responsible for the proper administration of your Plan. You can (and should) hire professionals to assist you in performing your rseponsibilities, however you are liable for their mistakes.

When hiring a professional you should inquire as to the expertise and require that they have errors and omissions insurance against which you may file a claim. If you are using the services of someone who claims to be merely a "recordkeeper" and not a professional pension administrator (sometimes called a TPA-third party administrator), they may not have E & O coverage and rarely have any professional expertise in plan administration.

Also, you need to understand the services the provider will perform--don't assume he will handle "everything." Most providers perform only certain services (recordkeeping, for example) and you need to make sure you, or other professionals you have hired, are performing other needed services (such as non-discrimination testing).

[Dowist]

It wouldn't hurt to have someone -preferably an attorney- look at the correction to see if it meets the conditions for voluntary correction. Some mistakes can be corrected voluntarily and without IRS approval - but if you take this route you'd better be comfortable that the correction falls squarely within IRS guidelines.

If a correction is not eligible for correction without IRS review, it would need to be submitted to the IRS under various programs that are set up for this. (Even if it is eligible for correction without IRS review, there may be situations where you would want to get IRS review anyway, such as where you're not entirely sure if you qualifiy for the voluntary correction without review or where your correction method is outside IRS guidelines).

This is a matter of judgement, and to protect yourself it would be helpful to have the attorney's letter in your files indicating that the correction appeared to be appropriate. Or the attoreny may tell you the method your recordkeeper has adopted is not appropriate, and you need to know this now so that you can get additional corrections from the recordkeeper.