Case Studies
Issue:
A new client’s compliance testing for the past several years improperly excluded several participants who should have been included. Unfortunately, the plan’s service provider failed to explain to this employer that the term “participant” includes individuals who were eligible for the 401(k) plan but who had elected not to make contributions. Thus, when the employer sent data to the service provider so the provider could perform compliance testing, the employer omitted information about those individuals. (The employer reasonably assumed that the service provider would analyze the data received and ask the client for any missing data.)Resolution:
I worked with the service provider to re-perform the compliance tests at issue, and I reviewed the new calculations performed by that provider. I then filed an application with the IRS to address this issue. After subsequent negotiations with the IRS, the IRS agreed to allow the employer to make certain contributions to the plan. This avoided significant tax penalties for the employer, as well as potential employee benefits litigation.