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Listen to Carol. The employer withheld monies from employee that shouldn't have been withheld. The employer needs to make the employee whole. Did the employer violate minimum wage laws? Did the employer fail to pay a union worker what they were entitled to? Are there contractual obligations or remedies that would apply? Whatever is required, they must do. Payroll manager should listen to attorney and do what Carol said (make employee whole, including contractual penalties, if any). If temporary employees are not eligible for the plan, then the plan is not involved. It never received monies attributable to employee and, even if it had, since employee not entitled to have money in the plan, the plan's obligation would be to repay the plan sponsor (or to use the funds to settle up with the plan sponsor vis-a-vis other funds that are due). I have no words to describe the payroll manager. Essentially, because of the payroll manager's incompetence an employee had a portion of their paycheck stolen by the agency and now the agency's representative is refusing to allow the agency to recognize its error and make things right! This is the sort of governmental misconduct that makes for a great story in a national magazine. Maybe the payroll manager isn't cooperating because this is a systemic issue affecting a lot of employees. Maybe no cooperation because the funds have been embezzled by the payroll manager? Obviously, not terribly likely, but why else would the payroll manager not budge?

Have a plan that calculates their match on a per pay basis. Paid Monthly Lets assume Joe Employee makes $84,000 per month and defers 401k of $1250. Their Match formula is 100% up to 3%. My calculation shows Joe would get $1250 in match per month. My question is do we have to cap his match to $7,950.00 (265000*.03) or does he get the full $15,000.00? More specifically with respect to tres reg 1.401(a)(17)-1(b)(3)(iii)(B)

And a word for the plan administrator: if the RK cannot maintain records and process transactions that are not only following IRS/DOL regs, but also following plan provisions, then a change in RK is in order.

To do a simple 5500 for one year might not be much of a burden. But what about the intervening years? And the DOL/IRS correspondence that would result? No telling what kind of black hole that might be.