incorrect match calculation

[Guest tlc@cra]

I have a plan that just noticed that for the past three years they have sent in more match then they intended. The document says that match is discretionary. They calculate and fund the match on a payroll basis. They wanted to match up to 5% of deferral. They switched payroll systems and the system was matching up to 15% of deferral for everyone in the plan. Everyone was treated the same and matched on everything they were deferring. Communication to the employees at enrollment meeting states they were matching up to 5%. Testing was done each year. But this was not noticed until recently by the client. I see this as an operational failure. How do you recommend this be handled?

[Guest 401der]

If the plan document says the match is discretionary, I don't believe you have an operational failure or any basis to take the money out of the trust. What you have is a discretionary match of 15%. Once money has been deposited into the trust and allocated, it can't come back out except under very special (and rare) circumstances - i.e. "mistake of fact." There was no mistake of fact here. The employer may have intended to contribute less, but it is too late after the money has been contributed to say "Whoops, we didn't mean to contribute that much." The employer can recoup by simply not making any match for the next two years. If any legal limits were exceed by the 15% match, the plan document should address how to handle those.

[david rigby]

Meant to contribute 5% but actually contributed 15%? Is it just me, or is that difficult to believe?

[Belgarath]

I don't think it is just you. For a few pay periods, yes, I could understand it. But an extra 10% for two years? I agree with 401der - it's there, can't be reomoved, so sorry, and have the employees thank the employer for the unanticipated largesse.

Is this employer currently hiring? I can get them a batch of applicants!

[mbozek]

The only argument for removing the excess contributions is if the extra contributions causes the plan to be disqualified and there is no other remedy to correct the mistake e.g., 415 limits.