Egregious SIMPLE IRA violations by employer

[Ferroplasm]

My wife has participated in an employer sponsored SIMPLE IRA from June 2011 to Dec 2016. During this period, her employer failed to follow IRS guidelines for the plan. I'll list the violations I was able to spot:

1) Voluntary payroll deductions were not deposited in a timely manner. In some years, all payrolls deductions were held by her employer and deposited as a lump sum at the end of the year. Other years, no deposits were made until the following year. 

2) Her employer gives no notice of an enrollment period. She's had no notice of plan changes or any details about the plan since she joined in June 2011. 

3) Her employer has not specified whether they follow a 3% match or 2% non-elective compensation.

4) Regardless of item 3, her employer only deposits 1% of her annual salary to the fund. I'm not completely certain this is how they're calculating the employer match because the employer deposits are sporadic and even absent some years.

My wife's employment ended Dec 31, 2016, but I noticed these errors while my wife was still employed. I encouraged her to contact EBSA to file a complaint regarding the missing and late deposits, but she was afraid of being fired. So, she approached her employer and asked for the deposits to be made in a timely manner. They weren't very receptive, but they did begin to deposit her voluntary contributions monthly. They did miss some months here and there and as of now the most recent deposit was made on 10/03/2016.

She left the company after being denied a cost of living increase and I'm reasonably certain her former employer will not be making any more deposits into her account, despite their legal obligation to do so. I think I've finally talked her into pursuing this with the EBSA, but I'd appreciate some advice on what to expect.

First, will the source of the complaint remain anonymous to her employer? She is now self employed in the same field that her former employer operates in and she is fearful that they will defame her character in retaliation if they find her to be the source of the complaint. I'm almost certain she is not the only employee whose IRA has been mismanaged, for what it's worth.

Second, after some reading it appears the SIMPLE IRA may be invalidated for a year in which the employer made certain violations, like not depositing matches. Is this a possibility her? What should she expect if this happens? Will there be tax liability on our end?

Third, will her employer be responsible for compensating lost earnings due to late deposits? Her investment fund wasn't the greatest, but she did miss out on some earnings. 

Any and all advice you can offer is much appreciated. 

Edit: I've uploaded a screen shot of the plan transactions so you can see how sporadic and untimely they were. My wife was being paid biweekly and had $50 voluntarily deducted from each paycheck.

[Gary Lesser]

Nice summary. Any complaint to the IRS or EBSA would remain anonymous; although he employer will probably suspect your wife is the cause of their many problems. I would be inclined to contact both agencies.

The employer appears to have violated its fiduciary responsibility (think prohibited transactions,15%  tax, and penalties) and this also has civil and criminal aspects attached to it. Each years prohibited transaction (generally the lost interest amount) is stacked onto the following year.

There may also be state law issues that need to be explored before any statute of limitations would apply.

SIMPLEs can be very unforgiving. The IRS is likely to impose sanctions; and I expect that they would be very costly (even more so, if it were "discovered upon audit). Also, missing deferrals and matching contributions would have to be restored to the plan along with earnings. There would also be interest on the underpayment of taxes, late filing and late payment penalties. There is also a penalty for making nondeductible contributions.

Preparing the spreadsheets to calculate the various components can be costly, not to mention the cost of preparing an application to correct the deficiencies.   

See Section 6.11 of the linked revenue procedure and search for words "egregious" and "sanctions."  EPCRS - Rev. Proc. 2016-51

I doubt there would be any adverse tax consequences to your wife, other than paying taxes on any distributions from the SIMPLE account. The interest would be computed on each and every late/missed payment until your wife is made whole (see section 6.11 mentioned above.). State legal action aside, the correction must be deposited into the plan account.

Hope this helps (and your wife and the employer get what's coming to them).

 

[Gary Lesser]

I forgot to mention that the employer must correct the late/missing deferral issues before the DOL/EBSA to avoid criminal penalties. Other defects can (and should) be fixed before the IRS. Self-correction does not appear to be an option.

[bad.1963]

I and a co-worker went through a much worse case.  We worked for a company that denied us medical and Simple IRA.  I found out about the SIMPLE IRA violation accidentally after pushing for the medical.  When they finally brought us the forms and we completed them they fired us the next day.  IRA and medical applications were never sent to carriers.  Blatant violations but no attorneys will take it on because it is not a discrimination case.  We were singled out of the plans because they felt we were afraid we would lose our jobs if we pushed the issue.  We pushed, they fired. Their ERISA violations would be up to $400,000 by now.  Termination was in 2015.  I had 4 years and she had 9.  Is there anyway for us to recover any more than the contributions they didn't put in?

[Kevin C]

bad.1963, I suggest you contact the IRS and DOL about your issues.  Employee complaints are one of the ways they select plans for audit (IRS) / investigation (DOL). If violations are found during the audit/investigation, the government can be very persuasive in getting the plan sponsor to correct the problems.  

https://www.irs.gov/help-resources/telephone-assistance

https://www.dol.gov/agencies/ebsa/about-ebsa/about-us/regional-offices