justanotheradmin Posted April 19, 2023 Posted April 19, 2023 let me start by saying - I think the sponsor should just fix. But since they are asking additional questions I don't know the answer I thought I would see if folks here can point me to threads where this has been discussed. Participant submitted a 5% pre-tax deferral election in 2019. It was never implemented. They don't have a balance in the plan. Participant is now terminated and is requesting a distribution. The plan does have a safe harbor match provision, and the sponsor has no problem correcting the missed match. They are arguing that the participant has some culpability in the missed deferral and for not catching it sooner and the sponsor does not want to make the appropriate QNEC for that part of the failure. Any thoughts on a failure to implement that is 4 years old? I'm a stranger on the internet. Nothing I write is tax or legal advice. I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?
Popular Post Belgarath Posted April 20, 2023 Popular Post Posted April 20, 2023 Well, it is generally considered un-American to accept any personal responsibility for your own actions. Now, in a reasonable world, of course the participant should share responsibility for ensuring that their election was implemented. I've seen deferral election forms that specifically state that the participant is responsible to ensure that deferrals are withheld according to their election, but the validity of this approach is questionable, even when it is specifically stated. The question is, will the IRS/DOL agree that the employer can skip the correction for the deferral piece, when it comes up upon audit or complaint? I don't believe there is any statutory or regulatory basis for denying this participant the make-up for deferrals. IMHO, the employer needs to swallow the poison pill and make the QNEC. I don't see this as a fight worth having. justanotheradmin, acm_acm, Nate S and 2 others 5
Paul I Posted April 21, 2023 Posted April 21, 2023 If the client chooses to "take their chances" and ignore or fight the issue, It is worth letting the client know that the participant apparently can document that the issue was brought to the attention of the client. Failing to take action can be seen by the agencies as a wilful disregard of the Plan Administrator's responsibility to act in the interest of the participant. The DOL in particular can easily escalate the issue into a fiduciary issue. It may seem easy to ignore or bully the participant, but one call from the participant to the local DOL office could show how bad that decision would be.
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