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403b Employer contribution miscalculated over 10 years. Correction?


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Hi there- new here.

Employer  contributes to NHEC employee % of salary, based on years of service. After internal audit, employer discovered they had miscalculated years of service  (over and contributed at this higer rate based on this mistake... going back 10 years. 

 Is the only appropriate correction to adjust years of service back to the initial error, and remove difference in contribution plus interest and earnings  for the full 10 years from empoyee RSP account? This would represent a significant percentage of the employee's RSP balance. Are there any alternative approaches to correct? 

Thanks!

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I would not presume to tell  you how to fix this, but, having worked with the ERISA attorney who assists with most of our work of this kind, the better choice would be to leave the contributions in the plan and amend the formula or whatever reconciles the YOS with what they did.  Nothing makes this error "disappear" but the better correction would be to reconcile the formula to what actually happened.  Removing assets from accounts (and recalculating benefits for 10 years, including payouts, etc.) for 10 years would not seem to be the best for the Plan Participants.

 

Patricia Neal Jensen, JD

Vice President and Nonprofit Practice Leader

|Future Plan, an Ascensus Company

21031 Ventura Blvd., 12th Floor

Woodland Hills, CA 91364

E patricia.jensen@futureplan.com

P 949-325-6727

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ABC Empl, based on the information you have provided, in theory you could go either way, i.e. conform the plan document to what happened, or remove money from account so conforms to what should have happened per plan doc. Probably will need to make VCP submission to IRS either way. Would need more facts to fully evaluate. Since participant is NHCE, probably easiest to amend plan for higher allocation, but again more facts needed to fully evaluate.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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