Correcting Pension and 401(k) Plan Errors Under the IRS Self-Correction Program

A Fortune 100 manufacturing firm sponsored three retirement plans for its union employee population: a pension plan, a 401(k) for pension-eligible employees and a 401(k) for non-pension-eligible employees. The manufacturer realized that pension-eligible employees who were terminated, but then won reinstatement of their employment through a union grief claim, were not always properly restored to the pension plan.

SBA was engaged to provide a third-party review of the pension recordkeeper’s plan for resolving the issue. SBA soon determined that reinstated employees who were not properly restored to the pension plan were also being enrolled in the wrong 401(k) plan. SBA worked with the recordkeeper to identify all affected employees. Then SBA determined the benefits each affected participant should have received, compared that amount to what each participant actually received and calculated all missed contributions and forfeited benefits through the correction date. SBA provided this adjustment data to the recordkeeper and ensured corrections were made in compliance with the IRS’ Self-Correction Program (SCP). Finally, SBA made suggestions for improving processes to avoid similar errors going forward.

SBA found that 20% of reinstated employees needed a 401(k) adjustment, a pension correction, or both. With SBA’s help, all the errors were identified and corrected in a timely manner, allowing the manufacturer to improve participant service and avoid paying penalties to the IRS. Today, benefit assignments for reinstated employees are reviewed by a cross-benefit team that includes health and welfare, pension and 401(k) specialists to ensure accuracy, bringing the instance of errors from 20% to 0%.