The Tabby Cat Food Producers 401(k) Plan imposed a six-month wait on new hires before they could enter the plan. However, in 2014 the newly hired Human Resource Manager decided that the eligibility waiting period should be changed to three months effective July 1st of that year. Unfortunately, she didn't realize that she should notify the service provider in charge of plan documents of the change. So, no plan amendment was done to align the plan’s operation with the plan document.
How did they fix it?
Tabby Cat Food Producers works with its ERISA legal counsel to determine how best to fix this mistake. Since the plan document was never amended to change eligibility, the plan has two options. It can return the money contributed to all affected participants for the three months the participants saved before they should have...or...it can amend the plan retroactively to 2014 to reflect the change in plan eligibility effective July 1, 2014. The fiduciaries for the Tabby Cat plan decide that it would be better to pay to amend the plan than to return money to affected participants. So, they retain legal counsel to do the retroactive amendment.
The client's ERISA attorney prepares a voluntary correction program submission for the IRS along with the retroactive amendment. Six weeks later, the IRS issues a compliance letter to Tabby Cat Food Producers agreeing that the retroactive amendment is acceptable and the adoption of that amendment brings the plan back into compliance. In a matter of a few weeks, Tabby Cat Food Producers successfully solved its problem of failing to follow the plan’s terms without negatively impacting plan participants. The cost to correct amounted to the preparation of the VCP submission, the IRS user fee and the retroactive amendment.
How did they avoid doing it again?
The CEO of Tabby Cat Food Producers was relieved the correction of this mistake was easy but also concerned that another mistake could easily be made and potentially be much more expensive to fix. A review of the responsibilities of the Human Resource Manager determined there were other needs for her expertise. After further discussions with their ERISA attorney, Tabby Cat Food Producers hired Fiduciary Outsourcing as their fiduciary Plan Administrator to outsource these responsibilities for the plan and prevent future mistakes.