Plan Participant, you must Wait.

[Mr Bagwell]

401k plan with 1 Year, 1000 hours for eligibility. Entry is quarterly. Deferrals changes are allowable on monthly basis, or the next administratively feasible payroll date.

Participant A hired 4/28/2012, fulfilled the 1000 hours, therefore is participant 7/1/2013. Did not sign up for deferrals until 10/15/2013. TPA and recordkeeper will not allow to defer until 1/1/2014 because the participant never signed up at 7/1 or 10/1.

Is this right?

I say it's not right, and the participant should have been able to defer the next administratively feasible payroll after 10/15/2013.

[ETA Consulting LLC]

I agree. They are, apparently confusing the entry date for plan participation as a controlling factor for making changing in the rate of elective deferrals. I could see if their argument was 12/1/2013; but would still agree with you that an earlier date would be admissible if it is administratively feasible.

Good Luck!

[Mr Bagwell]

I need some pretty substantial documentation to move the immovable object.

Please help.

Thanks

[Bird]

What is the argument against the clear language?

Deferrals changes are allowable on monthly basis, or the next administratively feasible payroll date.

As noted, 12/1 would be the worst-case scenario. The entry date was 7/1. Failure to enroll has nothing to do with being a participant; this employee is a participant on 7/1 and the quarterly entry date ceases to be relevant in any future admin issues for this person.

Maybe explain that failure to implement a deferral election means the company has to contribute half of what the participant wanted to contribute, at least under the self-correction program.

[Lou S.]

Participant entered 7/1 with 0% deferral rate. Participant elected 10/15 so if feesible the election should be enfore 11/1 (first of the month following the change). I agree with everything ERISA said above, show them the summary plan description section that describeschanging future elections and ask them how you don't qualify?

Then ask the TPA/record-keeper if they will be making the employer whole for the missed deferral opprtunity QNEC the employer may be required to make on your behalf or if they will be making the employer pay that? Copy the head of your HR department on the question to the TPA.

[BG5150]

Then find a new TPA.

And what does the record keeper have to say about it? Just take the money when we send it to you, take your 20 basis points and shut up.

[Mr Bagwell]

The record keeper (two different employees, same answer) says the participant didn't start participating and needs to wait until the next quarter entry. I haven't been told to shut up by the record keeper.......yet.

Thanks

[401king]

Maybe pointing out that the employee is included as a participant in the ADP test (assuming they didn't build their own software). Maybe that will be enough to swing their votes. I always assumed this was a mistake only HR made; not actual TPAs.

And if you can pull the summary plan description or plan document the language in there may explain it. For example, ours says, "You will enter the plan on..." as opposed to "You may enter the plan on..."

[K2retire]

Often the people answering the phones for the record keeper do not understand the difference between a plan entry date and a deferral change date. I wouldn't worry too much about getting a wrong answer there. As BG said, they just take the money, and I haven't heard of any of them turning it away for this reason.

The TPA is of more concern. Does your adoption agreement specify when deferral changes can be made, or is it a separate administrative procedure? Does the TPA have a copy of whichever document spells it out?

[Mr Bagwell]

The AA Agreement reads "Effective Date of Participation (Entry Date)" and First Day of Plan Quarter is selected as the option.

The AA Agreement reads under "Elective Deferrals" "Changes to deferral percentages are allowable on a monthly basis, or the next administratively feasible payroll date."

The SPD reads "You will become a Participant eligible to make Elective Deferrals on the first day of each plan quarter coincident with or next following the date you attain age 21 and you complete one (1) Year of Eligibility Service, provided that you are an Eligible Employee on that date." Same language for match and PS.

The SPD reads under Contributions to the Plan, Elective Deferrals "You may elect to start, increase or reduce your elections to contribute to the Plan effective as the dates established pursuant to the Plan Administrator procedures. Notwithstanding the foregoing, you may totally suspend your elections at any time." Next paragraph begins with "The plan administrator may establish rules regarding the manner in which your elections are made. The rules may also require that certain advance notice be given of any election."

Have not seen a copy of the Master Plan.

[BG5150]

What do they have against this person deferring? Jeez.

[Mr Bagwell]

The immovable object will not move. Based on the TPA's opinion, the eligible employee is not participating, so they can not be a participant. Around and around we go.... It's time to start soliciting a new TPA! Thanks for everyone's help!!

[austin3515]

There is one more avenue to be pursued - our Corbel PT 401k has two separate provisions regarding Commencing Deferrals, and Changing Deferrals. The former might be quarterly while the latter might be monthly.

You'd have to look at the adoption agreement, but perhaps the TPA is reading the document correctly. Are they able to point specifically to their rationale?

IF there rationale is that they are not a participant merely because they did not elect to contribute, the TPA would bound by professional ethics to resign as TPA and go back to 401k 101.

[GMK]

The SPD reads "You will become a Participant eligible to make Elective Deferrals on the first day of each plan quarter coincident with or next following the date you attain age 21 and you complete one (1) Year of Eligibility Service, provided that you are an Eligible Employee on that date." Same language for match and PS.

This reads as if the plan has automatic enrollment of employees ("You will become a Participant ... on the first day ...).

I wonder if the plan doc says that, or if it says that employees become eligible to participate on that entry date (but aren't enrolled until they choose to enroll). Just wondering.

And what Austin just posted, too.

[Mr Bagwell]

The conversation with the TPA centered around nothing specific in the plan doc and adoption agreement. Just the conjecture that the employee is an eligible employee that is not participating. They will be included in testing and safe harbor non electives because they are eligible. The employee has to participate to be a participant.

Commencing and Changing deferrals... not sure really.

Section 4.01 Elective Deferrals and Voluntary Contributions

(b) Modifications. As of the date a Participant first meets the eligibility requirements of Section 3.01, he may elect to contribute to the Plan. Subsequent to that date, a Participant may elect to start, increase, reduce or totally suspend his elections pursuant to this Section 4.01, effective as the dates specified in the Adoption Agreement.

[Mr Bagwell]

If anyone was wondering..... The answer was yes. If a plan was immediate entry, the employee would only have one chance a year to enroll in the plan.

How would I get a DOL opinion without having the employer scrutinized?

[ESOP Guy]

If anyone was wondering..... The answer was yes. If a plan was immediate entry, the employee would only have one chance a year to enroll in the plan.

So in these other people's mind how do you get around that if you don't want to defer when you first enter the plan? Do you have to complete a form that says in effect I want a 0% deferral election just to preserve your right to change your mind later in the year?

It has been a while since I worked 401(k) plans and I am stunned at these people's position.

As for your DOL question I would start first by talking to the powers to be at the plan sponsor and saber rattle that these people come up with a good documentation for their position or the plan sponsor starts looking for new service providers. I would only bring the DOL into this as a very last resort as that will "shine a light" on the whole plan and employer that you might not want to do.

[Bird]

The conversation with the TPA centered around nothing specific in the plan doc and adoption agreement. Just the conjecture that the employee is an eligible employee that is not participating. They will be included in testing and safe harbor non electives because they are eligible. The employee has to participate to be a participant.

Of course this is the crux of the problem. The employee is a participant after he has satisfied entry requirements and passed the entry date. The last reasonable thing is to ask them why they think the language about changing deferral elections is in there at all.

The nuclear option is to have the employee submit his change in writing (presumably he has already) and make it very clear that he intends to follow through with the DOL on this as a denial of an opportunity to defer. Do this at the plan sponsor level, not the TPA. I'd print out this thread; delete the names I suppose although I don't care about that, and make it crystal clear that the TPA's position TPA is dead wrong. Good luck.

[Mr Bagwell]

If anyone was wondering..... The answer was yes. If a plan was immediate entry, the employee would only have one chance a year to enroll in the plan.

So in these other people's mind how do you get around that if you don't want to defer when you first enter the plan? Do you have to complete a form that says in effect I want a 0% deferral election just to preserve your right to change your mind later in the year?

It has been a while since I worked 401(k) plans and I am stunned at these people's position.

As for your DOL question I would start first by talking to the powers to be at the plan sponsor and saber rattle that these people come up with a good documentation for their position or the plan sponsor starts looking for new service providers. I would only bring the DOL into this as a very last resort as that will "shine a light" on the whole plan and employer that you might not want to do.

Esop guy,

To answer your question. The 0% deferral doesn't work either, because in their mind the employee is still not participating.

The plan sponsor is the TPA... and I was talking to the powers that be.....so frustrating!

Thanks for your help and concern.

[Mr Bagwell]

The conversation with the TPA centered around nothing specific in the plan doc and adoption agreement. Just the conjecture that the employee is an eligible employee that is not participating. They will be included in testing and safe harbor non electives because they are eligible. The employee has to participate to be a participant.

Of course this is the crux of the problem. The employee is a participant after he has satisfied entry requirements and passed the entry date. The last reasonable thing is to ask them why they think the language about changing deferral elections is in there at all.

The nuclear option is to have the employee submit his change in writing (presumably he has already) and make it very clear that he intends to follow through with the DOL on this as a denial of an opportunity to defer. Do this at the plan sponsor level, not the TPA. I'd print out this thread; delete the names I suppose although I don't care about that, and make it crystal clear that the TPA's position TPA is dead wrong. Good luck.

Bird,

You are so correct about the crux of the problem. Trust me when I say I was so shocked as to the answers I was given when I started asking questions. Why the deferral change language? The answer is because once a employee is a "participating participant", they can change their deferral at the beginning of the months.

The TPA is the plan sponsor. Can't get around the problem. Will have to come up with a plan to start moving plans to a new provider.

Thanks for your help and concern.

[BG5150]

The TPA shouldn't confuse "participate" with "contribute."

My thoughts in bold. I can't see how this is ambiguous at all.

Section 4.01 Elective Deferrals and Voluntary Contributions

(b) Modifications. As of the date a Participant first meets the eligibility requirements of Section 3.01,[i'm guessing this is the 1 YOS, quarterly entry] he may elect to contribute to the Plan. [OK, the person did not elect to defer when he became eligible] Subsequent to that date, [OK, now we are a little later in the year] a Participant may elect to start [that is, the person wasn't "participating" yet], increase, reduce or totally suspend his elections pursuant to this Section 4.01, effective as the dates specified in the Adoption Agreement.[i'm guessing the AA states monthly]

[Guest A_Dude]

^{Ask the TPA if they understand the difference between a participant eligibility, entry, and making deferral elections. Also, might be worth explaining to them that they are using the maximum eligibility criteria and you must enter the plan as the document states (quarterly), and this entry is automatic. The maximum they could wait is six months from the time the eligibilty requirements were met, and they have now also failed under ERISA plan entry statues. Furthermore, their denial constitutes an operational error which may disqualify the plan if not remidied. The apporpiate correction is for them to make up missed deferrals according to your election during the period. If there is a match, or any other employer contribution you also are due any corrections for that also.}

^{Lastly go nuclear, tell them you want their refusal in writing and will be seeking consultation from the DOL in the matter. Even as a bluff, this might make them relent... They obviously have no idea what they are doing, and should be replaced ASAP.}

[GMK]

The TPA is the plan sponsor. Can't get around the problem. Will have to come up with a plan to start moving plans to a new provider.

Since the plan sponsor selects the TPA, moving the plan to a new provider seems unlikely at best. Why would a TPA who is sponsoring a plan (especially this TPA) choose a different TPA for the plan. Or maybe I'm missing something.

[masteff]

The plan sponsor is the TPA...

Pardon my ignorance/curiosity but what type of plan is this that the TPA rather than the employer is the plan sponsor? Is this a multi-employer or union plan that self-administers? Do you have a copy of the most recent 5500? Who is listed on it as the plan sponsor in Part II Line 2a?

[austin3515]

I believe what he is trying to say is that the Employer is self-administering the program. There really is not a THIRD PARTY administrator, only an Administrator. That's what I believe anyway.

[BG5150]

OP, what's your skin in this game? How did you get involved?

(Just curious)

[Mr Bagwell]

Sorry, I mislead and used incorrect terminology in regards to plan sponsor. The employer is the Plan Sponsor. The TPA is the plan administrator. According to the 5500 filing....

[GMK]

Thanks for the clarification, Mr. B.

As suggested above, replace this TPA with one who doesn't make up their own 401(k) rules.

[austin3515]

Let me ask another, way, because the TPA would never be the Administrator. Did Company ABC hire Pension Experts Inc. to assist with the compliance aspects of the Plan? Fill in the actual names, of course. And is a representative of Pension Experts Inc. giving you the offending answer?

[Mr Bagwell]

Austin3515,

Representative of Pension Experts Inc. give me the offending answer? Yes. The Senior VP of Business Development, and the assigned Relationship Manager. Two different employees of Pension Experts Inc.

TPA would never be the Administrator.....

AA agreement reads as such. Wheras, Adopting Employer wishes to appoint Pension Experts Inc. as the Plan Administrator of its Plan and to delegate to Pension Experts Inc. the fiduciary responsibilities enumerated in the Plan.............

[BG5150]

Put your thoughts in writing, taking care to explicitly state that these are concerns of yours and not merely an attempt to be contrarian, and you fear that if discovered upon audit or investigation, fines may be levied and penalties up to and including disqualification of the plan may arise.

Type it on letterhead, send it to the president of the company via registered mail. Signed by you or the president of your firm (perhaps both).

[austin3515]

Mr Bagwell, are you the participant in question?

[Mr Bagwell]

No, I'm not the participant. Broker of Record.