Recordkeeper - incorrect report? Involve the DOL?

A 401(k) plan sponsor used a daily recordkeeper for it's plan assets. It has become clear from the trust report (which is by participant and money source) provided by the recordkeeper, that the transactions are not recorded accurately. 

For example, several distributions were processed in 2018 with the non-vested account balances to be forfeited. The report has a column for forfeitures, but in many instances, it isn't used. The forfeited amounts are variously lumped into Transfers, or Gain/ Loss, etc. 

Similarly, several items which I would expect to show up as Contributions, are instead listed under transfers. 

The known errors have been pointed out to the recordkeeper and several requests for an updated trust report have been made. The recordkeeper will not provide an updated report unless someone agrees to their hourly fees for the time it would take to fix the transaction history and trust report. I suspect there are a number of other mis-coded transactions that haven't even come to light yet. 

At what point should the plan sponsor and trustees contact the DOL? Would that be futile? 

For what it's worth, due to other issues with the recordkeeper the money and recordkeeping was moved away to another provider, so future errors should be limited. 

I usually only see DOL involvement when it looks like fiduciaries might mis-handling plan money. I don't usually see the plan fiduciaries go to the DOL (or IRS) over an issue with a service provider. So i'd love some suggestions, or to hear of people's similar experiences and how they were resolved. 

Is the plan audited?  Is there a service agreement?

The Plan Administrator may wish to engage ERISA counsel.

The one thing you don't say is if you think people's balances are actually wrong. 

I get bad reporting is annoying but if they forf people and reallocated them correctly for example what is the issue in your mind?  

Maybe the reporting is so bad you can't tell????

If the amounts are wrong I agree there is an issue but not sure what you expect the DOL to do. 

I guess my thoughts would depend on if you thought people's balances were wrong or just or poorly recorded.  

My guess is also this is a contract issue not retirement law.  A recordkeeper presumably agreed to do a job correctly and failed to do so.  That strikes me more as a breach of contract than an ERISA problem. 

Not the clearest answers.

Thanks David and ESOP Guy. 

I suspect the account balances might be okay, but unless someone takes the time to request a complete detailed transaction history (which I doubt is available) and go through it line by line, I doubt there is any way to verify. 

I agree it seems like a contract issue. The recordkeeper does (or rather did) send participant statements out, so in the case of the incorrectly recorded deposits, it could easily look like someone did not receive all the money they were due. 

The plan is not audited. It has too few participants. The trustees are just trying to keep accurate records, and that is hard to do when the reports don't show things correctly. I'm concerned about the errors we haven't identified. The only ones that have come up so far are the super obvious ones. If they are willing to lump forfeiture transactions into earnings for participants, what else is being randomly lumped into earnings? More deposits? 

My guess is that the transactions are ok (recorded properly) but the reporting is horrible.  The alternative is that this RK has bad or no internal controls in its system and treats forfeiture as a earnings, which  I really doubt.  Bad reporting isn't that uncommon though this seems to be an extreme case.  

I think this is one of those situations where you roll up your sleeves and really dig into what you have and try to pull it apart and piece together your own "report".  There will be times when you will need to go to the former RK for clarification on a transaction, but they should be able to provide that without the need for a new report and hourly charges.

Who has been reviewing this plan in the past? 

If you're worried about later investigations or audits, then often you can get by with keeping good internal records and notes of what happened and when, and what actions were taken to fix it (i.e. firing them and carefully monitoring the new folks).  Drop it into a memo or other document, tag the fiduciaries and other important folks as needed (and save the email showing distribution).  Include discussion in the memo of what sort of notification to EBSA (or IRS) might be appropriate and why you made the decision to notify or not notify.  You might also include discussion of the issue in the minutes for the next meeting by fiduciaries, and any decisions made.  Benefits counsel could be very helpful here.

Save your documentation in the same place as other important plan information, so future people working on the plan can easily find it.  That way, if the plan does get hit with an investigation or some other audit, even if the entire team is new hires and new vendors they can still explain what happened and show how responsible the plan was about it.

If everybody's money is correct, and VFCP is not appropriate, and no DOL or IRS reporting needs to be amended, then there might not be any obligation to notify EBSA.  Just a contract issue with a bad vendor.

You could complain to EBSA, if you think snitching is warranted and want to stop these folks.  EBSA allows anonymous complaints.  It could throw a bunch of plans into investigations.

I don't think it's been reviewed in the past. 

There is a difference between having a very undetailed report, and having a report where the transactions are not coded correctly. 

For the forfeitures, a number of participants had distributions during the year, and the forfeiture account had a decent balance at year end. The trust report has a forfeiture column on it. But there isn't much shown in that column. After asking for more detailed information, it turns out that the forfeitures were shown as any of the following: forfeitures, transfers, realized gain / loss. So a participant (or trustee) looking at a statement or trust report would have no way of knowing how much was actually forfeited without asking for additional transaction information. 

I expect that lack of detail from brokerage statements, where there is no recordkeeping at all. I don't expect it from a company specifically hired to do recordkeeping, but just seems to do it really poorly. 

I suspect it depended on who was processing the actual distribution/forf transactions on any given day. That said, knowing what I know about transaction based systems and needing specific distrib/forf  amounts for an IRS audit, i do know that the system should be able to report out transactions by each one.

That said, I had to pull a lot of excel spreadsheets together explaining how transactions actually happened and where money was for the auditors. I do agree getting it right correctly the first time is important, but do agree that as long as you can explain it and no one lost funds, AND you are moving to another recordkeeper, I don't see that it is worth it to get them to correct it now especially if paying by the hour.

In the end, someone at the plan sponsor should have been watching a bit more closely - I am old school where we used to provide an "allocation report" each month/quarter by participant and then a plan reconciliation.  I was surprised when our RK stated that they rarely did either of those any more, because everyone is so used to the daily environment.

I am not sure which system the recordkeeper uses.  However, if it is Relius, there are Crystal Reports that will provide them with a detail of every transaction in the plan, by participant, by source, by date.  Maybe you could ask them to just generate a report and you can do the review from there.     

Perhaps engaging an auditor should also be considered.