Failure to notify employee of 401K eligibility

[Guest mission444]

I have been working for a company for the past 7 years. I am considered part-time because I only work 30 hours a week. I knew the company had a 401K Plan but didn't think I could participate because I was never notified by my employer that I was eligible and never invited to attend 401K Plan Meetings. Quite the opposite, I was instructed to answer phones while the rest of the employees went to the meeting. It wasn't until a few days ago that the Financial Advisor came into the office to meet with newly eligible employees that I thought to ask what the eligibility requirements were. To my surprise I was told the only criteria was to have completed 6 months of employment. There was absolutely no hourly requirement. I was devasted at the realization that I had lost thousands of dollars in savings, tax advantages, investment increases, and company matching funds.

I notified the President of my company, via e-mail, that I was extremely disappointed in having been deprived the opportunity to participate and that I was never informed of my eligibility. He replied that he was sorry for the misunderstanding and was consulting with the plan advisor and would get back to me. He advised that I fill out the enrollment form and hand them into HR as soon as practical.

My questions are....

1. What correction is my employer required to make?

2. Should I wait for my employer to make this correction before I enroll in the 401K Plan as he has directed me do?

3. Am I required to report this violation to the Dept. of Labor?

4. Should I consult with an attorney before I meet with my employer?

Thank you for any help or guidance you can provide.

[ETA Consulting LLC]

My questions are....

1. What correction is my employer required to make?

The employer will "likely" be required to contribute amounts to your account for each year you were denied the opportunity to defer to the plan. The amounts will likely be calculated as a percentage of your salary of each year. That percentage will likely be 1/2 of the average of all percentages of those rank-n-file employees who actually contributed. Don't read too much into the mechanics, but expect that the employer will likely contribute to your account.

2. Should I wait for my employer to make this correction before I enroll in the 401K Plan as he has directed me do?

No. You should enroll immediately if that is your desire. Once has nothing to do with the other. The employer's make up contribution will be calculated up to the time you were actually given the opportunity to defer (which is the time you were advised that you are allowed to enroll; regardless of whether or not you actually enroll).

3. Am I required to report this violation to the Dept. of Labor?

No. However, should you not get satisfactory, then your local DOL office will step in. The violation is that your employer failed to enforce your rights under the written plan. But, given them a chance to correct it. If you feel you are being jerked around, then contact the DOL.

4. Should I consult with an attorney before I meet with my employer?

No. Waist of time an money. This type of "failure" occurs often in the industry. Many employers inadvertantly exclude employees. Fortunately, the IRS has created a correction procedure for employers to implement. Many employers are happy to implement it. Should your employer attempt to "jerk you around", just contact the DOL. However, first give the employer a chance to correct.

Fact patterns are important. A little patience for the employer to make good would go a little longer. I answer these questions in this manner because the advisor who educated the employer on the failure will "likely" educate the employer on the recognized method of correction (making an employer contribution to your account in the plan for each year you were not advised of your right to defer). Now that you know "what the advisor would likely do", just sit back for a while and allow the play to unfold.

Good Luck!

[Recartuck]

Same issue:

Almost 7 years ago I received an offer letter that had the sentence "You will not be eligible for benefits in this position." I am a part-timer and was told by the recruiter and my immediate manager that part-timers receive no benefits, including 401k. I agreed to the position and started at the company on 02-01-2010.

Over the years at enrollment time I received benefits information emails along with all the other employees that included health and welfare enrollment, but no information on the 401k. In November of 2015 I happened to email the representative that sent the all-company benefits information to check if I was eligible for 401k and she replied that I was not. However, recently I found out that other part-time employees at the company are participating in 401k AND receiving company match (4%). The plan has no eligibility requirements other than being an employee for 90 days.

Since there is no HR Dept at this small company, I asked the corporate attorney who handles everything. He said he would look into it - that was right before Thanksgiving. Last week he called me into his office and produced a letter was supposedly sent to my home on 10-20-2010 indicating my eligibility into the plan. I honestly do not recall receiving/seeing this letter and if I had I would have asked my manager if I was eligible seeing as though I was offered the position with no benefits. Now the attorney is claiming it was my fault I have not been participating in the plan as the company provided information (once over the course of 6 years) on how to enroll (note that the letter was dated 5 months after what should have been the eligibility date).

Do I have a "case" here? Should I be personally culpable (as corporate attorney stated I was)? or is the company at fault? I'm not sure how much money is at stake here (I would have contributed the max amount to the plan as I had for 15 years at my previous company) as the corporate attorney refuses to share the NHCE ADP, however I'm thinking at least $10k if the ADP is 8% and including the 4% match for all those years.

I'm not sure what to do at this point - pursue my claim or chalk it up to a lesson learned. What do you think?

Thank you for any advice you can provide.

[Mike Preston]

It sounds like the plan is a safe-harbor match plan, is that right? If so, you were required to receive annual notices with the safe-harbor provisions specified. Have you been receiving Summary Annual Reports (which would only given to you if the plan were being administered as if you were, in fact, a participant)?

Where do you get the 8% ADP? That seems kind of high to me.

There are a lot of facts yet to gather to determine what, if anything, you are due.

In a perfect world you find somebody with an ERISA background to help you.

Maybe even contact the Department of Labor (you can find their contact information on their website) for help.

But it is a strange position you are in because I'm not sure you can force the plan sponsor into a restorative payment. The plan sponsor can be forced into a restorative payment by the IRS. Or the plan sponsor can voluntarily opt for a restorative payment if they believe they haven't provided you with the opportunity to defer that the plan, by its terms, provides.

Good luck.

[Recartuck]

Not a safe harbor plan. And you're right - 8% is too high. I did my calc with 4% which is how I got $10k.

I'm in the process of collecting facts. Waiting until I hear back from company attorney before calling DOL. I've been trying to find documentation on policies around notification of eligibility but haven't found anything other than suggestions.

Thanks for your answer.