401king

The participant lost a substantial amount of money due to this error; money that should not have been lost. I would think that if the sponsor is taking no action in resolving the problem, and that the deferrals did not follow the deferral contract, then the only resource left would be the DOL. It is my understanding that the DOL is the agency that resolves issues regarding retirement plans. Is that incorrect? Who else should I be thinking of going to for this type of situation?

A pretty big mistake caused a payroll clerk to "withhold" and contribute nearly 4-8 pay periods worth of deferrals for a participant in a single pay period. Deferral agreement indicates somewhere in the area of 25% per pay period. So, this participant didn't even receive a paycheck for that period, and now they are reducing the next few paychecks to make up for the amount they withheld over the period compensation. Not only that, this withholding took place about 6 weeks (or 20%) ago. The issue was brought to the attention of the payroll administrator promptly, who said there was nothing she could do. It is my understanding that the company who made the error (sponsor) is liable for the losses of the deferrals made in error; they are saying otherwise. My next step is to get the DOL (as the sponsor is not being very easy to work with) involved but I would like some feedback in case anyone has handled this situation before.

I don't know the regulation, but the fact is that the other 80% is still part of the plan, and can never leave the plan, so it's pointless not to fund on on as-needed basis because if they only fund 20%, then the guy terminates, then the other 80% still has to go somewhere within the plan. It's just more legwork to fund partially since the unvested amount will still be required to go into the plan.

The biggest reason we do reduce costs on solo-k's, or uni-k's (or any of the others), is because they always pass discrimination testing. Dump in the numbers, pump out the results. We even file the 5500's for them regardless simply because they are EZ-er to fill out for uni-ks.

I'm looking at my document system right now and it appears that you can only exclude additional compensation for matching, but not include compensation that is excluded for deferral purposes. For example: If salary deferral compensation excludes bonuses, but includes overtime, then my matching formula must exclude bonuses, but has the option to exclude overtime. So it looks to me like anything excluded from deferral comp. has to be excluded from match. You cannot exclude bonus in deferral, and then include them in match. I could have this all wrong and in the end its best to review the specs of the plan document's definition of comp for def & match (they should both be there).

The Plan Document says W-2 Compensation should be used. What if the company was using new comp for 2008 and just now realized it should be gross comp? Does the IRS have a correction program for this? Like QDROphile says, the plan document should state what compensation is eligible. There are multiple compensations listed on W2s, most of our plans use Box 5 "Medicare wages and tips" and is generally the largest comp #. Simply "W2 Comp." is usually not the language from my experience. If you're just now realizing it that it was supposed to be Gross the whole time, my guess is that it's too late for 2008 as there are no more payrolls that an employee could defer from for 2008. You can work with the employees and see if they'd like the money allocated across 2009. Using the above example, if the employees had 10 weeks of being 'shorted' $10 in deferrals, you could just spread out the $100 over a certain period for 2009; of course this would only apply to 2009 deferrals. In the end, it's my opinion that you would need to work with the employees to see if they'd like to make up the difference.

Thank you for your response. We were able to get an answer from an IRS agent affirming your statement. The code would be 8, and a letter would need to be attached to the tax return explaining the situation so the money wouldn't be considered taxable. Thanks, again!

Recently an overpayment was made to a former participant of one of the plans we administer. We contacted the former participant and were lucky enough to get in touch with the IRA institution in which she rolled the funds into. They are helping us get the overpayment back, but they are going to issue a 1099 with a code 8, which appears to make that distribution taxable for the former participant. In addition, that money was invested and lost about 20% of its value in the month it was invested. Here are some quick details: Distribution made: $25,500 Correct amount: $23,500 Amount that we are getting back: $1,600 <-- Amount to be reported by the IRA company as income for 2008; to be given back to the plan. As of now they plan on adding $1,600 to her income by issuing the 1099, code 8, even though the money is going back to the plan of which she is a former participant of. Does anyone have any suggestions of how the IRA company should be handling this so she doesn't have this overpayment distribution made into a taxable event? 1099 code suggestions? When we issue the 1099 on our end, should it be for 23,500, or 23,900 (to include the amount that was not returned to due decrease in the investment)? Any advice is welcome. Thanks!!