401k Mistakenly Moved to PEO

Large Payroll company has both payroll services and PEO.  Sponsor A signs up with payroll service in 2016.  Sponsor A has its own 401k Plan.

Sponsor A's 401k is mistakely moved to PEO 401k plan (don't ask me how).  Sponsor's employees have been making contributions to the PEO plan since 2016.

1. I assume this is a VCP Correction under transferred assets.

2. Who makes the application for VCP.  Sponsor A, PEO, or both?

3. Assuming it can be self corrected, is the money in the PEO treated as if it were in Sponsor A's 401k plan all along?  Or, are the contributions and its earnings taxable as that money didnt belong in PEO plan in the first place?

4. Can the money that is wrongfully in the PEO, be moved to IRAs?

Thanks in advance.

When you say that the 401(k) was mistakenly moved to the PEO, what do you mean? The money was moved? Were there plan meger or termination resolutions or amendments done? 

Does the PEO have an signed adopting employer agreement from Sponsor A? 

Hi. thanks for the reply. What I am saying is that Sponsor A had a 401k as a single member plan. Sponsor A switches to payroll co services.  At some point the 401k assets were moved from the single member plan under A's Sponsorship to the PEO's 401k plan.  There were no adoption agreements by A, since A was not a participating employer of the PEO. There were no mergers, terminations resolutions, amendments, or 5500s for A's plan.  I am trying to figure out whether A can treat money that was erroneously transferred to PEO as if it were in A's plan all along.  Or whether A has to go to VCP to make this correction.    

Was the pre-existing money in Sponsor A's plan also sent to PEO plan?

Or were only new contributions sent to the PEO plan, leaving the old money untouched? 

Has the Sponsor A plan been filing 5500s? Did they treat their plan terminated as of the payroll service change date? Forgive my skepticism I find it hard to believe there was no paperwork. Not even a blackout notice? I'm guessing there is some sort of paperwork (albeit probably incorrect or incomplete) somewhere. 

Either way both plans would have failures. Both the PEO plan fiduciaries and Sponsor A Plan fiduciaries should be aware they likely have fiduciary breaches. Especially if they accepted money that didn't belong to the PEO plan, or sent money from the sponsor A plan that shouldn't have been sent. 

The PEO Plan would need to disgorge the money and earnings tied to Sponsor A. 

Sponsor A's Plan needs to try to recover the erroneous contributions. 

Regardless of where the money was held (erroneously in the PEO plan) the money would be assets of Sponsor A's plan, and should probably be reported as such on the annual accounting, Form 5500s, etc. 

And to answer your question - Yes something like this would be a significant plan error and should go through VCP. I would not self correct this. 

No - the money shouldn't go to IRAs. 

I'm sure others can chime in with things I've missed and further suggestions. 

Maybe answering the questions above will also reveal "who screwed up".  This would be relevant to determine who pays the attorney fees needed for guidance thru this mess.

3 hours ago, goldtpa said:

Large Payroll company has both payroll services and PEO.  Sponsor A signs up with payroll service in 2016.  Sponsor A has its own 401k Plan.

Sponsor A's 401k is mistakely moved to PEO 401k plan (don't ask me how).  Sponsor's employees have been making contributions to the PEO plan since 2016.

1. I assume this is a VCP Correction under transferred assets.

2. Who makes the application for VCP.  Sponsor A, PEO, or both?

3. Assuming it can be self corrected, is the money in the PEO treated as if it were in Sponsor A's 401k plan all along?  Or, are the contributions and its earnings taxable as that money didnt belong in PEO plan in the first place?

4. Can the money that is wrongfully in the PEO, be moved to IRAs?

Thanks in advance.

An absurd situation with apparently no one paying any attention to the little details that we all spend our life worrying about!  I would think the assets could not have been moved from A's plan to any other place without A authorizing it (which he probably did).  But in military parlance, this is a FUBAR! (You can google that if you don't know the term.) It will likely take a seasoned ERISA specialist (possibly an attorney, but not always) to figure it out, get to the bottom of what happened, and figure out all the things that need to be done to fix it.  And of course, it's unlikely the client wants to pay for it because if he had been paying for competent assistance all along, this would have been identified when it happened and fixed at that point!  I'd get paid in advance if I was hired to help this guy.