Correction of Failure to Implement Deferral Election

[Spodie]

A Participant of a 401(k) plan has just brought the Plan Administrator's attention now after 8 years (completed an election form in 2008) that his/her deferral election has not been implemented. My question is; is there a statute of limitations since it has been 8 years. He's obviously seen his paycheck stub and has seen no deferrals being taken out. Not to mention the filing of his taxes and W-2 form for 8 years. The investments are semi-bundled with John Hancock so he would even has access to his account daily.

I'm thinking there is not a statute since the IRS says to "correct the plan as if the error never occured", but really? This is nuts!

If there isn't a statute of limitations, then at this point the only correction since this is going back to 2008 would be to use EPCRS "missed deferral opportunity" and file a VCP. Even though this is just one participant, it probably wouldn't fall under SCP. Around 53 participants, assets greater than $2 million and it's a safe harbor plan with Enhanced Match to boot.

Thank you!

[BG5150]

Can the person prove that HR received the election in good order?

[Tom Poje]

in 8 years the person never noticed or said anything?

good grief, I can see some fun stuff on this one.

"In addition to no deferrals being taken out, I came home from work and the wife and kids were gone. Come to think of it, I just noticed they haven't been around for 8 years either."

since an SAR has to be given out yearly and the person should have received those, so he knows plan is on going and never said anything about deferrals not being taken out...

since the plan would have been amended for EGTRRA within that time and the person should have received an SPD and never said anything. about deferrals not being taken out .....

[GMK]

Wouldn't it be great if participants watched over their accounts and promptly reported irregularities?

Time for the Plan Administrator to review enrollment and election procedures to add a way to document what they think the participant has elected, for everyone's reference 8 years later. When participants are first enrolled, send them a notice of what the plan thinks their deferral election is, and send another notice whenever participants change their election. Let participants know that they should expect to receive from the Plan a confirmation of any election changes they make.

One could even send fresher notices to the participants each year: "Our Plan records show that you are currently electing to defer n%, which is reflected in the deductions on your paycheck "stubs." If you believe that this is incorrect, please promptly notify us in writing. If we do not receive your written notice within 30 days, this deferral rate will be deemed to be correct."

Kind of a PIA, but serves as a CYA, too.

[BG5150]

I know some companies send out annual "let us know if you want to change your deferral %" correspondence to everyone. I'm guessing some of them have "you are deferring x%. Let us know if you want it changed."

[Spodie]

Thank you all for your response. Really good information to implement in the future for sure. Will discuss these possibilities with the client.