Correction of Error in Deferral Amount Withheld.

[Guest Chaffee]

Participant elected to defer 4% of compensation per payroll period starting March 1st. Due to error in inputting amount by Payroll, participant only had $4 per payroll withheld (vs. 4%). Match is 50% up to 4% per payroll period. Error was caught during reconciliation processes at end of the month.

Previous posts on this site seem to indicate that Employer would be responsible for the difference between the $4 and the 4%, as well as the related match differential.

Company has proposed to contact affected employees (2 of them) and ask if they wish to make additional contributions in April - December to make up for the under withholding. Is this an acceptable correction? Rev Proc 2003-44 seems to focus on improper exclusion from participation, not necessarily underwithholding. However, the "Brief Exclusion Rule" (Appendix B Section 2.02(1)(a)(ii)(E)) seems to support a principal that if the employee has time or the option to make themselves whole, the employer does not have to make up the deferral differential.

Any thoughts on this correction? Also, would the answer be any different if the issue is that a bonus run or manual check improperly did not have withholding, but employees were contacted shortly thereafter and could make up the amount through increased future deferrals?