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For 2020, a Participant elected $1,625.00 401k plus 541.66 catch-up withheld per pay. December 29, 2020, Participant completed another election form electing $19,500 annual 401k plus $6,500 annual catch-up withheld (proportionately from each pay). The employer provides 24 payrolls per year, therefore the 2021 per pay withholding should change to $812.50 + $270.83 respectively. Unfortunately, it was not changed and for both of January 2021's payrolls the previous election stood. Both of January 2021's 401k deferrals have been remitted over to the plan (same day as pay dates) making this not only a payroll issue but a plan correction issue. How best is this corrected? Should the employee be provided a special paycheck equal to the over contributions with taxes withheld (recognizing FICA will be overpaid)? And then to correct the Plan, should the contributions to the Participant's account be removed and placed in a forfeiture account? The employer realized the error and spoke with the Participant who is okay with what happened, does not want a correction, and simply wants to skip 401k deferrals for the month of Feb and restart again in March (plan does permit this frequency for changes) - is this acceptable? Thank you.

Facts: 401k Safe Harbor with Profit Sharing Plan (cross tested plan design) the 3% non-elective Safe Harbor is provided to NHCEs only Calendar Year Plan payroll is monthly professional staff, mostly HCEs, a few age 50+, many less than age 50 2 employees who are HCEs, elected the maximum 401k+catch-up, 1 of whom unfortunately passed away early in the year payroll vendor changed starting with April 2015 payroll all prior 401k+catch-up amounts were accounted for with change by new payroll vendor (error is not because of this). Error: HCE (age 50+) elected BOTH the maximum 401k deferral be withheld proportionately from each pay for the 2015 Plan Year ($1,500 per pay) AND the maximum catch-up be withheld proportionately from each pay for the 2015 Plan Year ($500 per pay). Total per pay withholding $2,000, representing deferral + catch-up. In addition this participant elected 100% of any bonus pay be withheld up to the maximum limits permissible. As it turned out for 2015, the only bonus pay was late December (no deferral was withheld). $2,000 deferral + catch up amount was withheld from monthly pay January through September (old payroll vendor and new payroll vendor). Starting with October's pay, the payroll vendor ceased withholding the $2,000 amount, and this continued through December 2015 (3 months). A late December bonus was paid but no deferral was withheld. Total missed deferral and catch-up: October 2015: $1500 deferral and $500 catch-up November: same December: same Total $4,500 deferral and $1500 catch-up Starting January 2016, the same withholding recommenced $1500 401k deferral + $500 catch-up (2016 limits unchanged) and are to this date continuing. Questions: 1. Given the withholding recommenced within 3 months is there a correction necessary, given the recent IRS new correction methods announced to avoid "windfall" to employee receiving full compensation and contribution? 2. If correction is necessary, is the catch-up amount included in the correction of missed deferrals, i.e. a corrective contribution is made for missed catch-up? 3. Is there any way to recharacterize the contributions totaling $18,000 (withheld as $1500 401k * 9 = $13,500, and, $500 catch-up *9 = $4500) that were made as $6,000 catch-up, $12,000 401k deferral? In this way the employer PS contribution can be maximized, assuming passes n/d testing, and the overall total maximum to this participant still achieved... in a good faith effort to make the participant's total annual additions for the year "whole." Thank you