When it comes to my law practice, I have an open phone call policy. I entertain phone calls from financial advisors and TPAs around the country and try to help them by answering questions regarding their current clients or potential clients. I don’t charge them for the phone calls because the retirement industry is a close-knit community and it’s all about building relationships.

A few weeks back, I got a phone call from an advisor I know and haven’t heard from for a long time. His client is a professional service practice and their new third party administrator told them they were Top Heavy for 2018 because the old TPA screwed up.

The client is adamant about not paying the top-heavy minimum contribution and the advisor asked what the consequences would be. While not paying the required top-heavy minimum contribution could result in plan disqualification, the Internal Revenue Service is not going to take that action if they catch it on an audit. They will require the plan sponsor to make the top-heavy contribution with some interest and likely pay a penalty. Also, the new TPA will fire this client as a client because no competent third party administrator will work on a plan where the sponsor refused to abide by the rules of qualified plans. Top-heavy contributions, minimum funding contributions, and any other mandatory contribution are like taxes, you don’t want to pay it, but you have to.

So next time your client tells you they don’t want to make a minimum contribution or make a withdrawal that is not allowed or make any action that contravenes the rules regarding retirement plans, tell them they have to play by the rules.