failure to stop withholding

[WCC]

Plan auto enrolls at 5%. Participant completes the online process with the vendor to opt out. Plan sponsor does not stop withholding for 6 months. Participant wants the money back. Vendor says "too late you can't have the money back" because too much time has passed. I don't think their answer is valid.

EPCRS does not have an example of this nature, but is it reasonable to return the deferrals and forfeit the match using the logic in EPCRS of: 

(1) Restoration of benefits. The correction method should restore the plan to the position it would have been in had the failure not occurred, including restoration of current and former participants and beneficiaries to the benefits and rights they would have had if the failure had not occurred.

Any other thoughts? (participant wants the money, so leaving it in is not an ideal option)

[My 2 cents]

Just wondering why it took the participant so long to notice that contributions were still being taken out of pay.

[WCC]

Not sure, I think the average employee never looks at their pay stubs or lives by any kind of budget. Therefore they would not notice until one night when something reminds them that they opted out 6 months ago and they better check to see if it actually happened.

[My 2 cents]

The average employee would probably not make the effort to elect out (which is the main idea behind auto-enrollment).  Having actually elected out, the no-longer-average employee is very much more likely to go to the trouble of verifying that the deductions have stopped.  So why didn't they?

[WCC]

No idea, does it matter?

It does not matter when looking at implementing an incorrect deferral election when too little was withheld and the employee does not say anything for six months.

[david rigby]

Pardon my ignorance, just what is meant by "vendor"?

[WCC]

Sorry, vendor meaning recordkeeper/investment company/insurance company in a bundled scenario.

[K2retire]

I believe the limit for permissible withdrawals, if allowed by the plan, is 90 days. Six months is clearly too long.

[Belgarath]

But that's if you didn't make an election. Here, the participant did make an election - employer just didn't follow it. I'd say you refund it, plus earnings if there were any. Any match made, plus earnings if any, should be forfeited. I don't think that the employee failure to look at pay stubs is material here.  I can easily see how this could happen - direct deposit of pay, one spouse keeps the checkbook up to date, other spouse doesn't even mention that elected no deferrals, etc., etc., etc.... - some people simply don't communicate.

Maybe that's a good thing - I've heard that communication is one of the main causes of divorce.

[duckthing]

17 minutes ago, Belgarath said:

But that's if you didn't make an election. Here, the participant did make an election - employer just didn't follow it. I'd say you refund it, plus earnings if there were any. Any match made, plus earnings if any, should be forfeited. I don't think that the employee failure to look at pay stubs is material here.

Agreed on all of this and I believe the reasoning in the original post is solid. This looks (to me) like a failure to implement a deferral election, not a permissible withdrawal situation. It sounds like there's a breakdown in communication between the vendor and the sponsor's payroll, and while you're fixing this I would definitely pull an opt-out report from the vendor to make sure nobody else who opted out is actually still deferring.

[QP_Guy]

The employer can't return the deferrals from the plan directly, but should correct the error by 1. removing the incorrect deferrals from the participant's account to the forfeiture account; then 2. making the employee whole via payroll.

[digger]

The salary deferral agreement that Relius provides includes language re: the participant's duty to review pay records. The participant's failure to report a discrepancy is deemed to be an election to defer the amount actually withheld. Perhaps the opt-out paperwork includes something similar.

[Belgarath]

I know the language may say that, but good luck getting an auditor to agree. I don't think it stands up based upon official guidance. If you ask Relius, I expect they might agree. This language is nice to hopefully prod a participant to pay attention, but I would not want to try to hang my hat on it if trying to defend the employer's failure. (Yes, if audited, you'd use that 'cause it's all you have got, but I'm not confident the auditor would agree. But hey, I've seen some fairly lenient audits, so you never know. I just wouldn't decide NOT to correct based upon this language.)

[Luke Bailey]

The original question noted that there is nothing specific in EPCRS about this and asked whether it would be reasonable to self-correct under EPCRS general principles by distributing the deferrals and earnings and forfeiting match. It seems reasonable to me.

[TPAJake]

We just dealt with this exact scenario & distributed with earnings, forfeiting match.  It wasn't bundled, so the recordkeeper complied with the Trustee's instructions, but it took some doing to find the right forms & explain the situation to the right person.  The recordkeeper had the same knee-jerk reaction as most though--Said it was too late, pointing to the 90-day rule.