Participation Agreement Interpretation

Posting by Phil Vivirito

Situation: The participation agreement between the employer and the plan called for contributions to be made on behalf of each covered employee “up to 12 % of the employee’s yearly gross wages.” The employer considers zero percent to be part of the “up to 12%.” The plan’s payroll auditor is looking at it as if the employer is failing to make contributions and is prepared to assess the full 12% per employee. Who is correct?

Both interpretations make sense depending upon your point of view. Should the Trustees or plan counsel decide what the correct interpretation is?

One item that needs to be addressed here is intent. What was the intention of each party when that language was agreed to and incorporated in the participation agreement? Once each side clarifies what the intention of that language is, it will make it easier for the Trustees to reach a decision.

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