401(k) Plan is irreparable

401(k) Plan is in awful shape, so owner, whose business is in just as bad shape, has asked to terminate it.  As far as I can tell he is simply not going to resolve everything and just wants to give the participants whatever balance they can.  He also has no intent of paying fees related to VCP and VFCP corrections.

So I've basically been asked for help so that participants can get balances paid out.  I know the typical response is run, run for your life but I've never believed that is truly a solution, nor does that benefit the non-owner participants.

Apparently, he has not paid at least 2 years worth of safe harbor contributions.

This is a pooled account and the owner has proposed the following:

He has no intent of making those safe harbor contributions, but he would be willing to give equivalent balances (contributions + lost earnings) out of his account balance to help make those participants 'whole'.

I"m just curious of any thoughts about this.

Run, run for your life.  You will believe in that solution right after your firm bears liability when you could have scampered away.  At the very least, go in with an ERISA attorney so your firm can say that the attorney was calling the shots.  If you can't find an attorney who is willing, what does that tell you?  

It has been a few days since I've read the new EPCRS but at some point no later than 1/1/2022 the IRS will allow an anonymous conference call to discuss alternatives.  I forget the precise parameters but what do you have to lose if you present your alternative as a take it or leave it concept?  If it is that important to you then offer to eat the EPCRS filing fee.

Agree with Mike. Require the owner hire an ERISA attorney or walk away.

I understand your desire for a "solution".  But as Mike points out you put your firm at great risk.  Not worth it.  "Won't pay" vs. "can't pay" are two entirely different things, and more frequently in these situations it is the former.  But currently it's not your problem, and you not obligated to make it your problem. 

The only solution for you to present is referral to legal counsel.  It is as much for his benefit as yours, as ERISA provides for both criminal and civil penalties, so he needs legal guidance with the benefit of attorney-client privilege to keep himself out of jail.  Your taking it on without legal counsel is actually doing the client a disservice since all of your correspondence and work product could serve as evidence to lock him up.  

Seriously - your desire to help is truly commendable, but take heed of what these experts above are telling you.

Do you really want to knowingly assist in a Fiduciary Breach? It is great to try to help people, but if they aren't willing to take the steps to help themselves, they don't deserve help. And while I would feel bad for the rank and file employees, I certainly wouldn't let that lead me to put myself at risk.

If they are unwilling to pay VCP or VFCP fees, they are unlikely to spring for an ERISA attorney. At least in my experience...

Best of luck on this one. Be careful not to sprain an ankle while sprinting for the exit! 

Yep, another vote for run.  While you are doing so, make sure to follow your engagement agreement (notify in writing, bla bla bla)

I had a similar one recently that was 2 years behind on safe harbor match contributions. I told him I would resign and not prepare any government forms, nor would any else if her persisted with the "can't pay" BS.  It was really silly too, because most of the safe harbor contribution would go to him and his wife.  It took me, the CPA, and his FA to convince him that the trouble he could or would be facing (including fines and possible criminal charges) if he didn't fund the contributions (or made other arraignments through VCP) just wasn't worth it.  He finally "found" the money and made things right (contribution plus actual rate of return).

What is the TPA's liability in everyone's mind?   It hasn't happened very often but I have had bosses sign off on doing work we found completely unfounded after the plan sponsor, who was the Plan Administrator and trustee signed a letter telling us they understood the issues (spelled out in letter) and wanted their TPA to do it their way. 

I am not a lawyer but is there something in ERISA that really says a TPA can be held accountable for doing what the actual fiduciaries told them to do after admitting all the problems?  

Or is the concern simply the cost of having to fight about if the TPA disclosed enough or reputational issues? 

Let me be clear I am all in favor of walking away for the simple reason these types of people are a pain and are just as likely to not pay your fees as they were to not pay the Safe Harbor contribution.   But those are practical issues and the comments here seem to suggest there is actual legal liability at stake and I have never seen that happen. 

2 minutes ago, ESOP Guy said:

What is the TPA's liability in everyone's mind?   It hasn't happened very often but I have had bosses sign off on doing work we found completely unfounded after the plan sponsor, who was the Plan Administrator and trustee signed a letter telling us they understood the issues (spelled out in letter) and wanted their TPA to do it their way. 

1.  Practitioner sanctions if the TPA is covered under Circular 230.  

2.  Being named in the subsequent lawsuit.  Which could come from participants, not just the employer.  See https://casetext.com/case/csa-401k-plan-v-pension-pro-inc .

Even though the TPA prevailed in court, just getting involved makes them a loser. 

I'm outta breath from running...

What happens to a troubled plan when there is no TPA to take them on?

1 hour ago, TPApril said:

What happens to a troubled plan when there is no TPA to take them on?

Eventually a participant complains to the DOL and they make the plan sponsor do the correction.  At least, that's what happened to one of our clients who refused to deposit two years of safe harbor match.

42 minutes ago, Kevin C said:

Eventually a participant complains to the DOL and they make the plan sponsor do the correction.  At least, that's what happened to one of our clients who refused to deposit two years of safe harbor match.

Maybe 15 years ago we had a client wash his hands of the plan.  We advised him about filing requirements, fiduciary duty to participants, etc. but he just walked away.  About two years later he called up and said something to the effect of "the Department of Labor just called me and said I need to re-hire you to help me wrap up this plan or I am going to jail".  

On 9/24/2021 at 12:08 AM, TPApril said:

He has no intent of making those safe harbor contributions, but he would be willing to give equivalent balances (contributions + lost earnings) out of his account balance to help make those participants 'whole'.

The owner might be able to get that in VCP.

If the owner is unwilling to try VCP, then advise him that the plan is disqualified, but the participants are still owed their money under ERISA, i.e. both the money currently allocated to their accounts and the missed contributions. I have worked on a case where DOL investigated a disqualified plan after the owner paid out all amounts owed to other participants from his own account. DOL closed the investigation and included in their report that the participants had received what was owed them (even though they could not roll it over) and plan qualification was not their issue, but IRS's. IRS never audited. Key is that if owner accepts plan disqualification, then the payments cannot be reported on 1099-R as coming from plan and eligible for rollover, and you cannot be involved in preparing 1099-R's that would indicate otherwise.

But I would at least run the numbers on a possible VCP, and as Mike said above, maybe run past IRS on a no-names call once that program opens up next year, or if there is urgency to submit, submit as anonymous submission now.

Before a court appoints a fiduciary, a threat of Labor’s enforcement might persuade an employer to administer its plan.  In those circumstances, an owner/employer/administrator might see sense in reasonable corrections.  And those circumstances might give a third-party administrator some bargaining power to negotiate reasonable fees (including payment in advance) and protective terms before the TPA accepts an engagement.

Before revealing information to a participant, one might consider whether the information was disclosed with an expectation or presumption of confidentiality or privacy and, if so, whether professional-conduct rules, a voluntary association’s rules, or one’s personal ethics preclude revealing the information.  But those questions might not arise because a participant might already know enough information to support her complaint.