PIC Case Studies


Pension Innovations & Consulting (PIC) was introduced to a client by a broker to help their client understand why their 401(k) was failing certain compliance testing. Upon investigation it was discovered that the plan sponsor was using an online third party administrator (TPA) that relied upon the plan sponsor to identify eligible employees and highly compensated employees (HCEs). This was all done via clicking a few buttons on the internet. The related instructions and definitions at our disposal for this are over 20 pages long!

The result of allowing the employer to do this was 2 daughters-in-law were improperly labeled as HCEs (their husbands had no ownership in the company). In addition to this, the employer incorrectly labeled 2 other employees as not eligible to participate in the plan when they did in fact meet all eligibility requirements. Based on this incorrect data, the TPA then ran the ADP test which of course yielded erroneous results. Refund checks were then issued to the HCEs in order to correct the testing failure, but, the amounts were not adequate to make the corrections within the timeline prescribed. Per IRS rules, in order to regain its compliant status the employer is required to pay a 10% excise tax plus make additional contributions to all non-highly compensated employees, which is a significant sum of money.

Moral of the story:

The TPA should be making determinations regarding eligibility and HCE status.


In this case an online service provider was serving as both investment platform and TPA. The broker made a recommendation to move the assets to a more current platform with PIC serving as TPA.

Paperwork was signed, enrollment meetings completed, and assets transferred. Upon receipt of the asset transfer file, PIC and the broker discovered that several distributions were made from the plan shortly before the transfer. In looking further at these distributions, it was discovered that these were taken as hardships, even though none of them qualified as hardships. Once again, the plan sponsor was simply able to go online and make these requests no review or check for eligibility were required by the online service provider. These actions taken by the plan sponsor technically disqualified the plan. Fortunately, PIC was able to step in and correct the errors and avoid disqualification of the plan.

Moral of the story:

While some solutions may look attractive because of price and/or ease-of-use, there is usually a reason its the adage that you get what you pay for. In this case, the sponsor unknowingly accepted liability by processing hardships without fully understanding the definition of a hardship.