Employer Contribution Made in Error

[Guest LisaPA]

During the audit of a 401(k) plan, we discovered that a number of employees who were not eligible for the matching employer contribution did in fact receive a contribution. Since the employer contribution was made as a % of each participant's compensation, the error did not result in other participants receiving less of a contribution.

I think the employer should leave the money in the participants' accounts since it was their error. Is there any legal reason that they would have to leave the money there? What else am I not considering? Any help is appreciated.

[Tom Poje]

the problem is that the contribution resulted in the plan document not being followed. to simply 'leave' the $ as is, even if it is only NHCEs is still a problem.

for a discussion of inclusion of ineligible employee you might want to look at #146 and #150

of Correcting Plan Defects Q&A

(on benefits link, but located at the Q&A board, not this message board)

[david rigby]

Link to Q&A column mentioned by Tom: http://www.benefitslink.com/qa_columns/pla...cts/index.shtml

Could be another issue with respect to deduction taken by the employer.