Error Found During Audit

[Guest Emiliano]

The employer did not withhold the correct amount as elected by several participants in a 401(k) plan. This also caused the employer matching contribution to be incorrect.

Rectifying the employer under-contributions I understand. With respect to the missed elective deferrals, how should this be rectified.

[lkpittman]

I think the best way to handle it would be to follow the correction method in Appendix B of Rev Proc 2001-17 for "Exclusion of Eligible Employee" and correct as you would for an elective deferral failure (failure to allow ees to make elective deferrals for a portion of the plan year). Er would need to contribute enough on the ee's behalf so that the deferral amount equals the ADP for the ee group (adjusted as set forth in the Rev Rul.