Blackout period and late deferrals

[Pammie57]

I am just wondering if any of you have had a plan affected by a blackout period where deferrals were submitted  Late because there was an issue with the new provider accepting them?....Did you calculate lost earnings on the late deferrals?  

[Larry Starr]

6 hours ago, Pammie57 said:

I am just wondering if any of you have had a plan affected by a blackout period where deferrals were submitted  Late because there was an issue with the new provider accepting them?....Did you calculate lost earnings on the late deferrals?  

I am not an expert on platforms and blackout periods, but isn't it just that the reallocation of the prior assets are in black out. Shouldn't they be accepting new money into the new available investments immediately? Just curious.....

[Pammie57]

I think they should be - but apparently they are not.....and it's a well known platform....it will only affect one payroll but I assume the employer would have to make up lost earnings if it is held in company assets until the platform will accept the funds.  I wonder if they opened an interest bearing account in the plan name and deposited them there if that would be better than being late?  anybody?

[RatherBeGolfing]

13 hours ago, Larry Starr said:

I am not an expert on platforms and blackout periods, but isn't it just that the reallocation of the prior assets are in black out. Shouldn't they be accepting new money into the new available investments immediately? Just curious.....

I have seen both, it really depends on the situation and the platform. 

Just now, Pammie57 said:

I wonder if they opened an interest bearing account in the plan name and deposited them there if that would be better than being late?  anybody?

Yes, that is the correct way to handle it.

Are they, or will they be, beyond the 15th of the month following before it can be deposited?  I think this is one of those situations where you could argue that you were still timely before the 15th of the month following, but I would still prefer to segregate assets into a plan account. 

[ESOP Guy]

I forget the exact wording in the rule but isn't it the deposit is late if not done as soon as administratively possible? 

 

Can a case be made the blackout makes it not possible until over? 

I am asking not arguing this position.   It has been a long time since I did any daily 4k work but it seemed like all the plateforms would take deposits and put them in a money market fund until they could be split back in the day to solve this. 

[Bird]

13 hours ago, Larry Starr said:

I am not an expert on platforms and blackout periods, but isn't it just that the reallocation of the prior assets are in black out. Shouldn't they be accepting new money into the new available investments immediately? Just curious.....

Larry, the trend now is to map everything.  Existing assets as well as elections for ongoing investments.  That way there are no re-enrollment meetings (maybe after the conversion)...and no new forms.  Which is indeed problematic, because that means there is no way to make deposits of new contributions during the blackout period.  (The elections come over with the assets.)  The cynic in me sees it as a way to subtly (or not so subtly) map to funds on which the platform provider makes more revenue, knowing that inertia takes hold and participants are unlikely to make changes.  Or simply trying to minimize time and effort.  It's just a lot easier to transition when there are no new meeting and the big providers suck stuff out of their respective systems.  Not necessarily a good thing.  Good for the advisors who want to show they are "being proactive" and moving plans every few years, and good for the platforms who are just trying to accumulate assets, thinking they are going to be the Amazon of the retirement world.  Sucks for us TPAs.

[Larry Starr]

7 hours ago, Bird said:

Larry, the trend now is to map everything.  Existing assets as well as elections for ongoing investments.  That way there are no re-enrollment meetings (maybe after the conversion)...and no new forms.  Which is indeed problematic, because that means there is no way to make deposits of new contributions during the blackout period.  (The elections come over with the assets.)  The cynic in me sees it as a way to subtly (or not so subtly) map to funds on which the platform provider makes more revenue, knowing that inertia takes hold and participants are unlikely to make changes.  Or simply trying to minimize time and effort.  It's just a lot easier to transition when there are no new meeting and the big providers suck stuff out of their respective systems.  Not necessarily a good thing.  Good for the advisors who want to show they are "being proactive" and moving plans every few years, and good for the platforms who are just trying to accumulate assets, thinking they are going to be the Amazon of the retirement world.  Sucks for us TPAs.

Thanks Ed.  Good to know, but it does suck!  Also, doesn't it also guarantee that problem of late deposits of on-going deferrals?

[Bird]

16 hours ago, Larry Starr said:

Also, doesn't it also guarantee that problem of late deposits of on-going deferrals?

It doesn't guarantee it but it makes it more likely.  Different folks have different priorities and they feel like it's not their problem, even though they caused it (!)

[Linda Wilkins]

We are dealing with this issue now, and a DOL investigator arrives to review the Plan (and timing of deposits) in 30 days.

The conversion data was imperfect, the new TPA would not accept deferrals for a period of 3 months.  The client was unaware of how to handle this, or that it was a problem because the TPA did not advise them, or even suggest that they consult ERISA counsel.  We hoped there would be an argument that the deferrals were segregated to an account titled in the name of the Plan's trust, but they were not.  (The Plan auditors were willing to include the segregated account in the audit of trust funds if they had been.) 

When the late deposits were made to the trust, the client credited earnings on the late deposits at the highest rate of return of any investment option.  (The client was not eligible to use the DOL's VFCP program because it had been notified of a DOL investigation.)  The TPA is preparing Forms 5330 to report the PT. 

[Marc LaRhette]

What I found with a recent 401(k) merger I worked on was target date mapping helped speed up the deposit and allocation to participant accounts of new payroll contributions. This was because the new record keeper could use the employee's date of birth that was uploaded with the census prior to the BO period to default the new payroll contributions into the age appropriate Vanguard Target Retirement portfolio, without waiting for the records from the old record keeper that had the prior employee investment allocations. This allowed deposit of the new payroll contributions within the 7 business day window that the DOL has as a safe harbor for small plans under 100 participants.      

Marc LaRhette, AIFA®, CEBS ,CFP®, CPFA

Partner

StarkMiller FBG

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Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC and Registered Investment Advisor. Insurance services provided by Stark Miller Financial Benefits Group not affiliated with Woodbury Financial Services, Inc.

 

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[Bird]

11 hours ago, Marc LaRhette said:

What I found with a recent 401(k) merger I worked on was target date mapping helped speed up the deposit and allocation to participant accounts of new payroll contributions. This was because the new record keeper could use the employee's date of birth that was uploaded with the census prior to the BO period to default the new payroll contributions into the age appropriate Vanguard Target Retirement portfolio, without waiting for the records from the old record keeper that had the prior employee investment allocations. This allowed deposit of the new payroll contributions within the 7 business day window that the DOL has as a safe harbor for small plans under 100 participants.  

For sure, target date mapping speeds up the process, since you are not giving anyone a choice.  But is that the best way to do it?  I don't know what it's like to convert a plan with 1000s of lives, but I know that in plans with single digits or a few more that you're going to irritate as well as confuse at least some people when you don't give them options.  The idea of mapping to TD funds, and only after the conversion allowing participants to move their money, is just not the way to do things, IMO.  If someone loses $1 because you didn't give them a choice, they're going to be PO'd.  

[ESOP Guy]

15 hours ago, Linda Wilkins said:

We are dealing with this issue now, and a DOL investigator arrives to review the Plan (and timing of deposits) in 30 days.

The conversion data was imperfect, the new TPA would not accept deferrals for a period of 3 months.  The client was unaware of how to handle this, or that it was a problem because the TPA did not advise them, or even suggest that they consult ERISA counsel.  We hoped there would be an argument that the deferrals were segregated to an account titled in the name of the Plan's trust, but they were not.  (The Plan auditors were willing to include the segregated account in the audit of trust funds if they had been.) 

When the late deposits were made to the trust, the client credited earnings on the late deposits at the highest rate of return of any investment option.  (The client was not eligible to use the DOL's VFCP program because it had been notified of a DOL investigation.)  The TPA is preparing Forms 5330 to report the PT. 

I would be interested in updates as the DOL part unfolds.   If you don't mind send them out way.   Thanks

[Scott50]

We just went through this with a client.  They had a perfect record of timely deposits and a solid procedure.  We noted this anomaly in their annual report, and didn’t have any issues when they were audited.

[Mike Preston]

31 minutes ago, Scott50 said:

We just went through this with a client.  They had a perfect record of timely deposits and a solid procedure.  We noted this anomaly in their annual report, and didn’t have any issues when they were audited.

Audited by IRS? Or independent CPA audit?

[Scott50]

The plan audit for the 5500.