Leaderboard

So an extra 7% was withheld from one paycheck? I agree with the negative deferral approach, which gives the employee back the cash through paycheck and turns the current withholding from +5% to -2%. As noted above, that might create a problem for the RK. If so, then I would reduce the next deferral to 0% and the one after to 3% - or reduce by the actual excess dollars if paychecks aren't all the same. If the employee doesn't care about the excess withholding and everyone wants to let it ride, i would have the employee provide something to that effect in writing to the employer just in case.

If the employee doesn't care I would personally let it ride. If they are upset, you should be able to reverse on payroll (negative 401k deduction) to get him his money back, and the recordkeeper should be willing to refund the plan sponsor based on a mistake of fact. Certainly easy enough to fix.

As long as you're not late in filing the 1099s electronically, it's not really your problem.

Mr. Ruegg: Please don't feel personally attacked because of the animosity that ERISA professionals have toward the California joinder law and procedures. The Department of Labor shares that animosity and unsuccessfully attempted to have it invalidated as preempted by ERISA (biting my tongue on the behavior of the courts of the sovereign nation of California*). I would appreciate it if you would explain how it is that the law only applies to government plans and those plans that embrace it. The forms and the statute (at my last reading years ago) do not suggest that limitation and I do not think the DOL would have taken such extraordinary action if the limitation truly applies as you stated. ERISA does not apply to governmental plans and the DOL objects to pre-empted laws only because the attempt to make plan do what plans are not otherwise required by ERISA to do (e.g. those laws that try to dictate who the appropriate beneficiary is despite plan terms and procedures). If a plan chose to go wacko and submit to local courts and follow the mandates of the law, I do not think the DOL would bother with that exercise of bad judgment. In fact, the substance and purpose of the joinder law (preservation of the benefit until the judicial proceeding can resolve the interests of the parties) can be reconciled with ERISA if a little creativity is applied, but the plans should not have to contort themselves and go through a stupid paper chase to accommodate somebody's uninformed notion of a nifty procedure that facilitates practice of law by filling in forms. *Ironically, the Ninth Circuit has produced some of the most credible rulings on interesting QDRO issues.

So this would not be relevant, fyi. When you have a compliance failure you can;t go to your employees and say "are you ok that I didn't follow the terms of the Plan"? I only mention it because it seems like your suggesting that based on this fact (and based on good communications that there was an ongoing failure to follow the terms of the Plan) there really is no correction required. My bottom line would be (from a technical perspective) you do have a compliance failure because you HAD a document that said people had a right to defer and you didn't do that. You excluded them when they were eligible, and EPCRS has a specific correction for precisely what you have. But to answer your question, your prior year ADP is zero. The 3% rule is only for the first year of the plan, and this is the second year of the Plan.

Because... they're not due yet? That's our viewpoint, too. But it's nice to know so we can answer the question. :)

no, before getting to component plan testing you have to pass gateway 1.401(a)(4)-9(c)(3)(ii) think of this way. you want to do nondiscrim testing which in some way involves cross testing. so you want to CROSS into that magic land, but there is a huge impenetrable hedge full of nasty thorns as well on one side. even if you could get to the hedge, you would first have to get over the moat full of nasty slimy things (including Flint water runoff). You tried testing on an allocation basis (which would avoid a gateway) but Gandalf is standing there saying "You shall not pass". So your only choice is to go through that magic GATEWAY. (first and foremost, before proceeding any farther down the road to cross testing land) hmmm. my copy of the regs says "Lord of the Things", but at least I can slightly understand it.