Administering retirement plans involves the careful coordination of vast quantities of data from multiple sources. As you may recall from your Plan Services Agreement (“PSA”), we rely on the data you and/or your payroll provider give us when calculating participant eligibility and performing other activities for your plan. Sometimes, despite best efforts and precautions, errors can occur. For example, maybe you forgot to inform us of new pay groups, new employees at your organization, or that your company is acquiring another entity. Whatever the oversight may be, the Internal Revenue Service (“IRS”) and Department of Labor (“DOL”) created a set of rules to correct those mistakes. This guide will help you to understand how certain categories of plan errors are corrected, which we also explain in our Corrections Policy that is referred to in your PSA.
Clerical Errors
Sometimes plan sponsors accidentally submit a payroll file twice, or a file has a misplaced decimal point in a participant’s compensation. The IRS refers to inadvertent clerical or typographical errors like those as a “Mistake of Fact,” and you may be entitled to receive a complete refund of the contribution back to the plan sponsor. Please note that the IRS only permits refunds in very limited circumstances. If you believe a payroll file submission qualifies as a “Mistake of Fact,” please contact us, and we will provide any needed forms that set forth the circumstances in which the IRS permits a refund. When submitted, we will process your form and refund promptly if a refund is available pursuant to the applicable IRS rules.
Auto-Enrollment Errors
When employees become eligible to participate in the plan, we provide them with a set of notices about their plan so that they can make informed decisions about whether and to what extent they can invest in the plan. If you have selected an automatic enrollment feature, it means that all of your participants, once eligible, will be enrolled in the plan at a default savings rate unless they opt-out. All participants get instructions about how to opt-out but may still forget to do so. If your plan has an automatic enrollment feature that allows for a 90-day permissible withdrawal, sometimes referred to as an “unwind” feature, and if the participants notify us within the first 90 days of an automatic enrollment plan that they intended to opt-out but forgot to submit their opt-out election, the IRS considers this a “Permissible Withdrawal.” Participants must complete a Permissible Withdrawal form here, and, if they qualify, they may receive a refund of any contributions made to the plan during those first 90 days.
“De Minimis” Errors
The goal of the regulations about correcting plan errors is to put affected participants in the position they would have been in had the error not occurred. However, the DOL and IRS consider some errors to be so small that they do not need to be corrected. Here are some examples:
- If a participant is entitled to compensation for not having their investment selections promptly implemented, but the lost earnings are less than $1.00;
- If a participant is entitled to compensation or a distribution for an amount less than the cost of postage and/or the distribution fee; or
- If a participant was overpaid, a distribution from the plan for less than $250.
In each of these scenarios, the regulators do not require any corrective action, and we will not process any such corrections.
Payroll Processing Delays
If there is a delay of more than seven days in processing any payroll file, the DOL considers the contributions to the plan to be “late.” These delays can happen for a variety of reasons: we may not have received your payroll file from you or your payroll provider; you may not have submitted your payroll file consistent with our formatting requirements, or the content of your payroll file was not consistent with the features you selected for your plan (please see the Plan Adoption Agreement Guide provided to you during onboarding here). We will calculate the lost interest owed to affected participants using a DOL-approved calculator. Plans that experience late payroll file processing are also required to file a Form 5330 with the IRS and pay an excise tax. If you need assistance, please contact us at employerservice@futurestepretirement.com. You can read more about late payroll submissions here.
Plan Document Errors
Sometimes sponsors of existing plans cannot locate a signed plan document. Though it may seem like a trivial matter, the IRS technically considers your plan to be non-existent without a signed plan document and any amendments to comply with legislative changes. If you or your prior provider cannot locate a signed plan document, you may need to engage qualified counsel, at your expense, to create them and take any other necessary steps, such as getting those documents approved by the DOL before your plan is onboarded to our platform.
Plan Operation Errors
Our plan onboarding specialists will provide you with a Plan Adoption Agreement (“PAA”) and a Plan Adoption Agreement Guide that explains all of the features you selected for your plan. That PAA is a critical document because it is the basis by which the Recordkeeper, all plan service providers, your payroll provider, and you must use it to operate your plan. We strongly suggest you keep the PAA and the Guide handy as a reference. If the plan is operated inconsistently with the PAA (for example, by allowing ineligible employees to enroll in the plan), we can usually correct those types of errors by creating a plan amendment that aligns with how you have been operating your plan.
Eligibility or Enrollment Errors and Delays in Implementing Participant Investment Selections
Among other rules, your plan document dictates when employees become eligible and how often they can be enrolled during the year. It can be easily remedied if a participant’s date of hire is incorrect or a similar data error and there is a mistake in determining the participant’s eligibility date. In order to restore the participant’s position, we will determine how much the employee would have contributed, determine any employer match that the employee missed, adjust both items for any missed investment earnings, and notify the participants of the additional compensation that will be given to them. If this type of error is not detected or corrected within three months of when it occurred, there may be an additional employer contribution owed to the plan.
More Complex Errors
All of the error types mentioned above can be corrected without the need for a filing with the DOL or IRS. However, other error types require review by the DOL and/or IRS. For example, if you forgot to inform us that your organization acquired another business or that the owners of your business also have ownership interests in other companies, those omissions are more serious and may require regulatory review. This is why it is so important that you promptly complete all questionnaires that we provide to you during your initial onboarding and at the end of each year completely and accurately.
Guiding Principles
Most plan errors have relatively easy solutions, but some types of corrections are more complex and costly to resolve than others. You may be wondering who pays to correct these mistakes. We explain in your PSA that the Recordkeeper will pay its proportionate share of responsibility for the error. In other words, if we make a mistake and we’re solely responsible for it, we stand behind our work and will make it right for you. However, if the error occurred on your end or was caused by a service provider that you engaged to support your plan separate from the Recordkeeper (such as your payroll provider) or a prior provider before your plan was transferred to our platform, we cannot and will not be responsible for the cost of correcting those issues. We conduct a root cause analysis with any error and will work with you to determine a fair and reasonable division of responsibility.
You may also be wondering what happens to the plan when correcting other kinds of errors. If you have other errors relating to your payroll submissions that don’t qualify as a Mistake of Fact or other categories above, the IRS does not allow us to reverse the transaction and issue a refund to you. For example, if an employee was enrolled in your plan before satisfying the eligibility requirements; if deferrals were withheld from the wrong employee’s pay; or if a contribution was calculated using the wrong amount, those are not a “Mistake of Fact,” and you are not permitted to receive a refund from the plan. Instead, we are required to transition the funds to a holding or "suspense" account. The balance in that account can be used to reduce future contributions.