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Also, take note of the eventual timing that leads to 27 paychecks in one calendar year.

Yes, there are payroll systems that will do what you would like. I think the issue is whether or not the people (HR, or payroll processer) coding the payroll system is doing what they are supposed to be doing.

I frankly don't believe what you are being told. No payroll system would have a crippled ability to process bi-weekly deductions vs. semi-monthly deductions. Someone doesn't know what they are doing. And, after asking someone to prove it to me and if they do, the answer is simple. The client needs to get a payroll system that does what a payroll system is supposed to do. This answer is NOT justifiable.

I agree with your concern. The sponsor has failed to implement a deferral election. Having an inadequate payroll system does not excuse the sponsor from its responsibilities. Corrections are needed both for the missed deferrals and associated match contributions.

Are you sure it has to be allocated for 2018? Sometimes (often?) the doc will say it has to be allocated in the year of the forfeiture or the next year. I'd try that first. Otherwise, I'd try to use it on admin expenses. Last choice would be to allocate it as a profit sharing contribution, assuming the plan allows match ff to be allocated to PS. Which raises another caution flag - will this create nuisance accounts for participants who otherwise would not have an account? If you wind up allocating $25 or whatever so someone who doesn't have an account, that is a waste.

To Appleby's point - the document itself may have language in it that "cancels" benefit accruals if common law employees meet the eligibility....but not necessarily so it's definitely worth a look.