Their Mistake But We Pay a Sizable 401K Termination Fee?

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JSparks
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Their Mistake But We Pay a Sizable 401K Termination Fee?

Post by JSparks » Thu Jun 20, 2019 4:28 pm

The company that does the recording keeping and TPA for the 410k for my small business made a mistake and allowed me to over-contribute to my retirement account for several years. This resulted in many, many hours of work for us that have been uncompensated. Now we are planning to move the 401k to another service provider.

The current provider charges a sizable fee to terminate the 401k. But if we are switching providers because of their mistake, should we really be on the hook for the termination fee?

Thanks
Jeff

fabdog
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Re: Their Mistake But We Pay a Sizable 401K Termination Fee?

Post by fabdog » Thu Jun 20, 2019 4:42 pm

What does the contract say?

I understand that a lot of uncompensated time from your end has gone into fixing the error... but their incentive to work with you is low if you are terminating the plan. Maybe if staying you could ask for a break on fees, etc as compensation

If the contract calls for the fee, I think you are on the hook. You can always appeal to their management and make your case

Mike

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whodidntante
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Re: Their Mistake But We Pay a Sizable 401K Termination Fee?

Post by whodidntante » Thu Jun 20, 2019 10:24 pm

I don't see what A has to do with B. A and B were both pretty bad for you. If you're lucky, you can avoid a bad C.

ERISA Stone
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Re: Their Mistake But We Pay a Sizable 401K Termination Fee?

Post by ERISA Stone » Fri Jun 21, 2019 12:56 pm

Can you explain what mistake your TPA/recordkeeper made that caused you to go over the limit?

mchampse
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Re: Their Mistake But We Pay a Sizable 401K Termination Fee?

Post by mchampse » Fri Jun 21, 2019 7:55 pm

Which limit? The individual contribution limit (the one that is $19,000 this year) or the maximum allocation (the one that is $56,000). If the former, you could be over contributing towards a mega Backdoor Roth. If the latter, that does seem weird that they wouldn’t have some kind of warning.

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LadyGeek
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Re: Their Mistake But We Pay a Sizable 401K Termination Fee?

Post by LadyGeek » Fri Jun 21, 2019 8:54 pm

Has the mistake been corrected?

The Employee Benefits Security Administration (under DOL) is responsible for enforcing 401(k) plan compliance under the Employee Retirement Income Security Act (ERISA).

They provide several Correction Programs to help plan providers ensure ERISA compliance. The bottom line is that errors must be corrected or the plan will be subject to auditing and possible penalties. This is a fiduciary responsibility to the plan participants.

I'm currently researching this topic, as my 401(k) plan provider made an erroneous contribution for me and a bunch of coworkers. They're not being transparent on how the error is corrected. I'm not a lawyer, but understanding how ERISA enforces 401(k) plans is helpful.

This Fact Sheet explains the plan provider's responsibilities:
• Restore to the plan the principal amount involved, plus the greater of lost earnings, starting on the date of the loss and extending to the recovery date, or profits resulting from the use of the principal amount, starting on the date of the loss and extending to the date the profit is realized;
• Pay the expenses associated with correcting transactions, such as appraisal costs or fees associated with recalculating participant account balances;...
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Stinky
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Re: Their Mistake But We Pay a Sizable 401K Termination Fee?

Post by Stinky » Sat Jun 22, 2019 10:46 am

fabdog wrote:
Thu Jun 20, 2019 4:42 pm
What does the contract say?

I understand that a lot of uncompensated time from your end has gone into fixing the error... but their incentive to work with you is low if you are terminating the plan. Maybe if staying you could ask for a break on fees, etc as compensation

If the contract calls for the fee, I think you are on the hook. You can always appeal to their management and make your case

Mike
+1

Do you have any other business relationships with this provider that can be leveraged to give you a break on the termination fee? Or is there a way for one of your senior folks to talk to one of their senior folks?

As we all know, life just isn't fair sometimes. And this may be one of those unfortunate situations.
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HomeStretch
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Re: Their Mistake But We Pay a Sizable 401K Termination Fee?

Post by HomeStretch » Sat Jun 22, 2019 10:51 am

Part of the termination fee is to cover the cost to provide the participant account information to the new provider.

The standard payroll and benefit provider agreements are not great in my experience for small employers. Review the new provider’s contract language and request addendums if necessary to adequately cover yourself in the event of termination and receiving electronics copies of your participant information.

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