What happens, though, if you try to sign up for a workplace plan and your employer ends up not following through? Let’s pretend, for example, that Xavier got hired and filled out all the paperwork to enroll in his company plan. The only problem is, the company never processed the request.
Now, it’s been a year. Xavier missed out on his employer matching contributions, plus the returns he’d have made. And he’s wondering who has to eat the loss. Will his employer need to give him the money he missed, or is Xavier going to be set back in his saving efforts?
Employers have to make things right when they mess up retirements
Fortunately, Xavier isn’t just going to lose out on the missed contributions. His employer made the mistake, and the law provides strong protections for workers to make sure workplace retirement plans are handled properly.
“A worker in this spot is not simply out of luck,” Aaron Hall, a business attorney in Minnesota, told Moneywise. “Being left out of a workplace retirement plan is one of the most common mistakes employers make, and federal law treats it as the employer’s problem to fix, not the worker’s loss to absorb.”Hall explained that the majority of private-sector retirement plans are covered by the Employee Retirement Income Security Act of 1974 (ERISA), a federal law that applies nationwide. ERISA puts the burden on the employer to make a worker whole when there’s a problem with missed contributions, and the IRS actually administers a formal correction process for this situation.
According to the IRS guidance, a failure to deposit a worker’s contributions must be corrected by making a late deposit of the funds.
How much can Xavier get from his employer?
Xavier didn’t just miss out on the contributions he signed up to have taken from his paycheck. He also lost employer matching contributions and gains that the money would have made. So, the big question is, how much money does the company have to give him now to make up for its mistake?
“Make whole does not always mean a dollar-for-dollar refund of everything the worker would have set aside,” Hall explained. He said typically an employer who missed contributions must restore:
