401(k) & Match are not deducted from 2nd paycheck. What are the consequences to the plan?

[Guest mecboo]

I was recently informed one of my clients have been issuing a 2nd paycheck to some employees for additional pay. Not bonus pay, but compensation after the 1st check was issued.

The plan sponsor deducts 401(k) and contributes the ER Match from the 1st check but does not from the 2nd check. The plan document states the following:

"Such Matching Contribution may be made as of any payroll date or calendar quarter based on the Compensation and Salary Deferral Contribution made as of such payroll date or calendar quarter"

I work in a daily environment & the spreadsheet the client provides us only has one line item for each employee, so it appeared to us they are only receviing one check. This is an audited plan and this "2nd payroll check" was discovered when the auditors were at the client site. We, as the TPA, were unaware of this 2nd paycheck.

What the consequences to the plan? I know we can amend the plan for future payrolls, but what should the plan sponsor do for past years, especially 2004 sinde that is the year being audited?

Thanks!

[david rigby]

The sponsor's first problem might be whether those amounts were included in W-2. Not your problem, but very important to get straight. That may be related to your problem because they may be sending you a year-end payroll record with all adjustments applied. If they did, and you did not notice the discrepancy, get ready to hear the question, "why didn't you notice this earlier?"

Of course, one must refer to the plan document definition of Compensation to determine if a problem really exists.

[Guest mecboo]

The amounts were included on the W-2, as I compared the compensation figures the client gave me with the W-2's. When they send us the payroll spreadsheet, for example, John Doe would have $2400 in compensation for a pay period. However, the client issued 2 checks the total $2400. So, to us, since they only have the name & full amount on one line, it looks like one check was issued.

The Compensation definition states that "A particpants compensation that is actually paid or made available in gross income during the plan year". These amounts were part of the gross income & on the W-2's. To me, that means the client should been deducting the 401(k) & contributing the ER match from that 2nd paycheck.

This goes back to my original question in that what consequence is there to the plan? What the best way to correct such a problem, at least in 2004, since that's the plan year in question?

The client will be amending the plan going forward.

Thanks Pax!