401k match 5 years late

[Guest goblue]

Hi,

I'm new to this forum, but would much appreciate any advice you might have regarding my situation. I recently received a letter from my employer and their 401k administrator stating that they found a mistake calculating my eligilibity for a company match contribution back in 2008. They have reviewed their records and determined that I should have been eligible for a company match back in 2008 but due to a mistake with calculating my Program Eligibility Date, I was not eligible for a match until 2009. So I missed out on the entire company match for 2008, which is on the order of $6K. According to the letter, they have consulted with the IRS and have deposited the $6K into my 401K using the investment elections I had on file back in 2008 and "all corrective contributions received applicable investment experience which was calculated and added to your account in accordance with the direction by the IRS." Does this "investment experience" refer to investment gains since 2008? I'm not sure what "investment experience" means in this context...but from what I can tell, the $6K does not include any investment gains since it's consistent with my yearly % match based off my salary.

Back in 2008, I distinctly remember asking my manager if I would be eligilble for the 401k match and him saying he would investigate (probably asking HR) and finding out that I was "not eligible". While I am glad that this mistake was found (better late than never), I'm concerned about the lost investment gains that I would have accrued had this match been deposited back in 2008. My investments have probably gone up by at least 50% since that time due to the stock market increases since the 2008 market bottom, thus $6K in 2008 would be at least $9K now.

My question for the experts on this forum is how to best handle this situation. According to my 401k adimistrator there is an appeals process that I can follow which involves my writing a letter to request the appeals dept to review my case. I need to explain my situation and suggest a desired outcome. I know next to nothing about the laws and rules that govern 401k's or how they handle late match contributions like my case. Assuming I write this appeal letter, what outcome should I request? Can I ask for the lost earnings that would have accrued if my match had been deposited on time? How does one even calculate such earnings since it would require a detailed knowledge of my investments back in 2008 and look at stock/fund closing prices for each pay period in 2008. One final point is that I doubt I am the only employee who is affected by this mistake, so while other employees might not write an appeals letter, any revised decision on my case might force equal treatment for the other similar cases.

Thanks for any advice on how to best handle this!

[ESOP Guy]

Before you start a formal appeals process you might simply want to ask the questions you asked here to someone in HR. In particular if you work for a larger employer they might have someone in HR whose job it is to help run the 401(k) plan. And just see what the answer is. It sounds like they gave you some kind of earnings. So maybe they can explain how they computed the earnings they gave you and their justification for those earnings.

If you don't get a good answer or you think the answer is wrong then you might want to start with a formal appeal process. An appeal process requires the employer to make very specific replies by specific deadlines and so forth. It has a confrontational feel to it. As such any answer you get is more likely to be vetted to be very proper and correct. It might even be written by a lawyer which means it might not be very clear while very accurate.

However, in most cases an informal conversation can get you the answers you need.

In the very end if you have tried all of that and you can't get an answer you can go to the Department of Labor of help. Once again doing that will tend to bring out the lawyers and so forth. So I tend to recommend going there last.

[Bird]

I agree, it sounds like they are crediting you with earnings. I think I'd simply ask them to show you the calculation of earnings and see if it appears reasonable.

[david rigby]

My investments have probably gone up by at least 50% since that time due to the stock market increases since the 2008 market bottom, thus $6K in 2008 would be at least $9K now.

Maybe. I believe the "market bottom" was in March 2009. It's possible a 2008 amount went down before it went up.

However.... the relevant date is the date on which the 2008 match for all participants was actually deposited.

[Guest goblue]

Thanks everyone for your contributions. I agree that initiating a formal written appeal seems a bit heavy handed at this point so I called the 401k help line for a second time and spoke to someone else. I found out that they did indeed include some earnings on the order of about $3K, but it was buried in the transaction history so I did not see it and it was not broken out in the formal letter they sent me. I asked them to provide me with an explanation of how they calculated the earnings, which they will attempt to do within 5-10 business days. I will post back at that time if I still have concerns/questions. Thanks.

[masteff]

Phrases like "consulted with the IRS" and "in accordance with the direction by the IRS" are indicators that your company submitted a correction plan to the IRS using the Employee Plans Compliance Resolution System (EPCRS). The earnings calculations under EPCRS are not intended to indentically replicate the performance you might have had. It is intended to be fair and equitable to the majority of participants. If your individual portfolio performed better than the EPCRS method provides, you won't be credited with additional earnings; but on the flip side, if your individual portfolio performed worse than the EPCRS method provides, you won't be penalized with lesser earnings.

[Guest goblue]

Phrases like "consulted with the IRS" and "in accordance with the direction by the IRS" are indicators that your company submitted a correction plan to the IRS using the Employee Plans Compliance Resolution System (EPCRS). The earnings calculations under EPCRS are not intended to indentically replicate the performance you might have had. It is intended to be fair and equitable to the majority of participants. If your individual portfolio performed better than the EPCRS method provides, you won't be credited with additional earnings; but on the flip side, if your individual portfolio performed worse than the EPCRS method provides, you won't be penalized with lesser earnings.

Thanks for this clear explanation. I was wondering how a 401k plan would calculate the exact dollar amount of "missed" earnings for a specific investment allocation over a specific time-frame. It seems like a rather complex problem, albeit probably do-able if you have the right computer program. Do you know if there is any recourse if I'm not satisfied with the EPCRS methodology b/c it may underestimate my missed earnings by a significant amount? Thanks.

[QDROphile]

Various courts have ruled that IRS approval of a correction does not bar a participant from prevailing on a claim that the correction still shortchanged the participant. The IRS approval relates to qualification of the plan and sometimes some income tax matters.

[masteff]

Remember that your original calc of earnings is no longer correct. You originally stated that $6K should have been at least $9K. But we now know that $3K of the $6K was earnings. Which means you got $3K earnings on $3K contributions. By all means look their calc over carefully, but be sure you reset the numbers you use in your own comparison calc.

EDIT: Also keep in mind the timing of the contributions. The market didn't collapse until September/October of 2008 and the worst wasn't until early 2009. While you would have received some of the contributions at the low point, presumably, some of them were at much higher price levels.

[Guest goblue]

Actually it was ~6K of missed match contributions plus ~3K of earnings for a total of 9K. I will await their calculation details to see if the earnings calculations seem reasonable.