Automatically Enrolled prior to being Eligible

[ktrombino]

I have a plan where two 19 year old employees were automatically enrolled in the plan on February 1, 2020.  The eligibility age is 21.  They were both just terminated due to COVID 19 related matters.  Their account balances are less than the total amount of employee deferrals contributed to date.  What sort of correction would need to be made? 

[C. B. Zeller]

You can correct under EPCRS by retroactively amending the plan to make them eligible, as long as they are NHCEs.

[Peter Gulia]

Or:

 

If an employer paid amounts to a plan by a mistake of fact, ERISA’s anti-inurement provision might not preclude a return of an amount to the employer.  ERISA § 403(c)(2)(i).

 

A plan’s governing document might permit, or at least not preclude, such a return.

 

Under a typical provision, the plan returns to the employer the lesser of the mistaken payments or the account that results from the investment of the mistaken payments.

 

Beyond whatever correction someone might want about a retirement plan, the employer might want to pay the past-due wages.  Under many States’ laws, a failure to pay wages might be not only a civil violation but also a crime.  ERISA might preempt a State’s law for what is properly done under an ERISA-governed plan’s automatic-contribution arrangement.  ERISA § 514(e).  But an employer should not rely on that idea to legitimate an unauthorized reduction of the wages of someone who was not a participant.

 

If a return is allowed, perhaps making up the loss that resulted from investing the missing wages is not too big a price to pay toward corrections on both fronts.

 

This discussion is not advice to anyone.  Ask your lawyer.

[ktrombino]

Thank you both for your input.