401k Set Up Trouble

[coleboy]

I work for a payroll company One of the sales reps sold the "wrong" kind of 401k plan to a client  in 2016. This client has large turnover, etc. Plan was set up with no eligibility requirements. It ended up being top heavy for 2016 and 2017. TH contribution was about 100K for 2016.Plan did not pass adp testing either. I was just asked to re-do the documents and set up the plan as a safe harbor with the original effective date. I was just told tp pretend that it was always set  up like that. I don't feel comfortable doing it.  After all, it's a year and a half later!

Any suggestions?

[ESOP Guy]

What you are being told to do is not legal.  There is no way around that.

I am not being flippant here but you are in a tough spot.  You seem to have 3 options:

1) Try and convince the powers to be not to do this but find a different solution that is most likely going to cost the firm money

2) Join them in a clearly illegal act

3) Refuse and maybe lose your job

I feel for you and am glad so far I have not faced that fact set. 

Sorry, if that isn't the help you wanted.  As I tell my clients some times I know that isn't the answer you wanted but it is the correct answer. 

[ESOP Guy]

I would add I would start updating my resume tonight.  I don't think I would want to work for this kind of company.  It is just I would also rather me control the timing of the leaving instead of them . 

[Soundbc1]

Reminds me of the CPA, who got caught back dating documents, way back during the TRA '86 restatements.  He was fined $200K and barred from ever working on qualified plans.

He was having his clients back date the previous document (DEFRA). He needed to submit the old docs to the IRS, along with the TRA documents.  The problem was the old documents were printed on a laser printer, "when the laser printer hadn't yet been invented".

 

[TPAJake]

I had a boss once that asked me to re-print an old DB freeze that was never executed so the client could sign it now & submit to PBGC during a plan termination.  I refused of course & immediately started job hunting.  I won't be party to that kind of garbage.

[K2retire]

And after you find a new job, we'd love to know which payroll company it was!

[ETA Consulting LLC]

There are lots of companies who have sales people setting up plans and drafting the adoption agreements with provisions they can possibly understand.  This level of incompetence is not limited to payroll companies, but they are probably the worst offenders.

Good Luck!

[RatherBeGolfing]

17 hours ago, coleboy said:

I work for a payroll company One of the sales reps sold the "wrong" kind of 401k plan to a client  in 2016. This client has large turnover, etc. Plan was set up with no eligibility requirements. It ended up being top heavy for 2016 and 2017. TH contribution was about 100K for 2016.Plan did not pass adp testing either. I was just asked to re-do the documents and set up the plan as a safe harbor with the original effective date. I was just told tp pretend that it was always set  up like that. I don't feel comfortable doing it.  After all, it's a year and a half later!

Any suggestions?

 

17 hours ago, ESOP Guy said:

What you are being told to do is not legal.  There is no way around that.

I am not being flippant here but you are in a tough spot.  You seem to have 3 options:

1) Try and convince the powers to be not to do this but find a different solution that is most likely going to cost the firm money

2) Join them in a clearly illegal act

3) Refuse and maybe lose your job

 

When you try to convince them to find another solution and / or refuse to take part in this illegal act, do so in writing. 

[MoJo]

17 hours ago, ESOP Guy said:

What you are being told to do is not legal.  There is no way around that.

I am not being flippant here but you are in a tough spot.  You seem to have 3 options:

1) Try and convince the powers to be not to do this but find a different solution that is most likely going to cost the firm money

2) Join them in a clearly illegal act

3) Refuse and maybe lose your job

I feel for you and am glad so far I have not faced that fact set. 

Sorry, if that isn't the help you wanted.  As I tell my clients some times I know that isn't the answer you wanted but it is the correct answer. 

I would add a fourth option (AFTER updating your resume) - let the IRS and/or DOL know.  The DOL allows anonymous "tips" and even though this appears to be an IRS issue, it would get some attention.

I have actually seen this done - where a former employee turned in a former employer (a TPA that mishandled it's own plan) and there was a full blown investigation resulting in additional contributions to the plan.

[Belgarath]

You might try mentioning that (presumably) the employees (and there are obviously lots of them) have already received SPD's. All it takes is one participant to complain to the DOL when they don't receive a contribution that they see that they are entitled to, and the results could be FAR more expensive to your employer, in addition to the possibility that the IRS will audit the plan. Furthermore, the 5500 forms would be KNOWINGLY falsified, and that's bad news as well.

It is illegal, and otherwise just plain wrong, on so many levels. "Do I keep my job, or help Bernie Madoff embezzle funds from his clients?" It really boils down to the same thing, albeit on a smaller level! I truly sympathize with your situation, and can only wish you good luck. And, it is possible that when some of the "bad stuff" is pointed out to your employer, they may surprise you, and take the bull by the horns and accept responsibility. On a more realistic level, you might suggest they contact an ERISA attorney about the possibility of a "John Doe" VCP submission where they propose the reform the document to what was "intended." I haven't been involved in a situation such as this, but perhaps it is a possibility.