Who decides which long-term-part-time employees are eligible?

For those grappling with an absence of Internal Revenue Service guidance about how to interpret 2019 and 2022 changes to ERISA and the Internal Revenue Code about a long-term-part-time employee’s eligibility, here’s another wrinkle:

Who decides?

If a participating employer excludes from elective deferrals under a pooled-employer plan (or other multiple-employer plan) an employee the pooled-plan provider or administrator decides ought to be included, what corrective steps and remedies must or should the pooled-plan provider or administrator pursue?

Or imagine a single-employer plan has a § 3(16) administrator unaffiliated with the employer, and that administrator’s responsibility includes deciding which employees are eligible (for each kind of participation, including elective deferrals):

If the employer excludes from elective deferrals an employee the administrator decides ought to be included, what corrective steps and remedies must or should the administrator pursue?

Are there circumstances in which an administrator may defer to an employer’s interpretation about which long-term-part-time employees need not be eligible? Or would that be an abdication of the fiduciary's responsibility?

The answers ultimately distill down to a discussion of what boundaries, if any, exist between co-fiduciaries.  In both the PPP and the 3(16) administrator scenarios, the plan sponsor and the service providers are distinct, unrelated entities which suggests that the terms of the service agreement will play a crucial role in resolving the situation.

In both scenarios, it is very likely that the employer controls payroll, and payroll will follow the instruction of the employer.  Payroll is the entity that will calculate the amount of a deferral that should be funded to the plan. 

The PPP is the PEP plan sponsor and the PPP trustee or other fiduciary designated by the PPP (thanks SECURE 2.0) is responsible for collecting contributions due to the plan.  In this scenario, if the PPP determines that there is an LTPT that should be included and the employer disagrees and refuses to instruct payroll to take the deferral, then the PPP should start the multi-step process to rid the plan of the "bad apple".

The 3(16) administrator likely does not possess same level of authority over the plan as the PPP has.  The 3(16) administrator could look to the service agreement to see if the administrator was delegated the authority to determine eligibility.  If not, the administrator's choices are in that range between resigning or trying to generate enough documentation to try to show they were just following the instructions of the employer.  If the administrator was delegated the authority to determine eligibility, then they should have an obligation to pursue getting the employer to respect the delegation of authority to the administrator.  If the employer refuses, it sets up a conflict between co-fiduciaries.

As always with conflicts between an employer and service provider, it is easier to say what should or could be done versus real-life decisions about business relationships and ethics.