Leaderboard

I love when people who have absolutely no experience in the financial 401k business/processes decide they know the best way to handle 401k transactions and the laws that surround them. Not sure why you even came on here to ask. What you are stating is standard operating procedures for most employers and most 401k plans. There are protections there that you might not see or value, but it doesn't mean they aren't there and that there is no value to you, your employer or your assets. And honestly $10k in aggregate is nothing for most of these employees. They see much larger account balances/distributions and personal information than that. $10k won't even get them across a border nor sustain them for very long. Their annual bonuses might even be larger than that...mine were 20+ years ago!

All I can tell you is that it is SOP. Typically, the non-financial administrative firm is responsible for keeping track of all things administrative and procedural. We (yes, my firm is a non-financial administrative firm) have learned through bitter experience to insert ourselves at every step to ensure that things are done properly. What can go wrong? Gosh, I could write a book (and I may just do that someday). As far as identity theft goes, the non-financial administrative firm already knows just about everything about you. It needs to in order to accurately prepare governmental filings. You should, if you had a peek at all the things that could and do go wrong, be thankful that the non-financial administrative firm is being pro-active and inserting themselves at a point in time where a correction, if it needs to be made, can be done before a problem develops. I admit my opinion is biased, so I welcome others offering you a different viewpoint.

I guess you could always amend the DB plan to exclude anyone by name 'who wants out' so to speak. of course such an arrangement you are talking about with some accruing in the db and others in the DC would have to be tested for nondiscrimination, and would also possibly fail minimum participation somewhere down the line (imagine if 60% decide to go DC, then only 40% benefit in the DB...)

I suspect Mike Preston's intuition is correct. The payroll manager either has known about a systemic problem for years but kept quiet and now someone's calling him on it, or he has now learned that he has a systemic problem well beyond this one employee. Either way he is paralyzed by fear.

The agency needs to make the employee whole (where have I heard that before?). It seems like the employee can be made whole by treating 2014 and 2015 as follows. FICA has already been paid and reported for both years on the erroneously withheld monies. That makes things a bit messy. The payroll manager is correct in that a pure correction for 2014 pays the employee for the withheld amounts and changes the W-2 to reflect taxable income that wasn't previously reflected, followed by the employee revising his/her 2014 tax return if it has already been filed. In this case the employer should pay whatever accounting fees the employee is stuck with. In addition, the employer should increase the refund to reflect interest lost in the interim. A spreadsheet will make this task relatively easy, but your payroll manager sounds like any effort is too much effort. You do the same thing for 2015 as far as the employee is concerned, but the correction is made before the end of the year so the W-2 for 2015 will be correct when issued. Fixing a screw up is never painless.