How common is this? How can you try to correct it if it occurs?
Provided by Christian H. DePaul, CFP
Your latest retirement plan account statement arrives in your email inbox. You take a look at it – and something seems amiss. “That can’t be right,” you say to yourself. There must be some kind of mistake. Who should you talk to about this? Who can fix it?
Mistakes do happen with retirement plans. As a consultant to these programs told the trade journal PLANSPONSOR, they are “ubiquitous.” In fact, they are so prevalent that the Internal Revenue Service devotes more than 20 web pages to helping employers fix them over at irs.gov.1,2
A small business has much on its collective mind, and sometimes its retirement savings program may get short shrift. Errors may occur regarding ongoing salary deferral amounts, plan participant loans, or company matches when an employee’s pay is boosted by tips or bonuses. In the case of traditional pension plans, an employer may even pay the retired worker too much.
How can you detect mistakes? Look at your paystubs consistently to make sure your account balance reflects your contributions. This will not be a direct relationship because of compound interest and yield over the years, but if something is really off, it should be evident. If you happen to have taken a loan from your plan, check to see that the balance reflects this. If you have changed your investment mix or the percentage of salary you defer into the plan per paycheck, examine your account statements over the next several months or year to confirm that these changes are carried out.
How can you try to fix these errors? You should turn to the plan sponsor (your employer) first. Approach your employer’s human resources department according to procedure. Read the rules for addressing such mistakes within the summary plan description (the booklet about the plan that you should have received at or shortly after your enrollment) and bring your account statements with you. Your employer will want to know about any potential mistake, because if it is not corrected, it could mean trouble with the IRS.1,3
About 40% of all workplace retirement plans in America are sponsored by companies with less than 10 employees. In such cases, your human resources contact may, effectively, be your boss. How should you bring up such a delicate matter to him or her?3
One, meet with your boss privately and be very polite. Maintain a pleasant attitude. Avoid appearing disgruntled. The conversation could awaken your boss to the need for better administration, better supervision of the plan.
If the answers you get at work don’t seem adequate, then contact the plan provider (the investment firm that furnishes the plan for your employer). You could also ask the financial professional who consults you to look into the matter on your behalf.
If you have retired after participating in a pension plan and you wish to challenge what you feel is a mistake, you may want to contact the Pension Rights Center at 888-420-6550 or via its website, pensionhelp.org.4
Christian may be reached at (434) 385-1340 or firstname.lastname@example.org.
Christian H. DePaul is a Registered Representative offering securities through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. DePaul Wealth Management and Cadaret, Grant are separate entities.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 – plansponsor.com/Plan-Sponsors-Should-Be-Aware-of-Common-Errors/ [6/1/15]
2 – irs.gov/retirement-plans/plan-sponsor/fixing-common-plan-mistakes [9/15/16]
3 – thefiscaltimes.com/Articles/2014/01/08/How-Convince-Your-Employer-Fix-Your-401k [1/8/14]
4 – marketwatch.com/story/what-happens-when-theres-a-mistake-in-your-401k-2016-10-24 [10/24/16]