failure to deduct deferrals from final paycheck

[k man]

client neglected to deduct salary deferral amount as well as make the matching contribution on the final paycheck for several employees. the client's auditor discovered. is it necessary for the employer to make the contribution and the match on behalf of the group of terminees? is this even a qualification failure?

[QDROphile]

The employer does not have to do anything. The employer can leave the plan at risk of disqualification. The fiduciary should consider its obligations. Usually the fiduciary does not have an obligation to make sure contributions are made, but it may have an obligation to report to the recipient if the amount of distribution is not what the plan says it should be. You know, utmost duty of loyalty, highest standard recognized by law and all that. Whoever signs the Form 5500 should carefully consider if all the information on the Form 5500 is correct in light of the known shortfall of contributions and distributions.

[k man]

i am not sure i agree with your response. if the employer fails to follow the salary deferral agreement it might be a qualification issue. seems very similar to exclusion of an eligible employee.

[WDIK]

if the employer fails to follow the salary deferral agreement it might be a qualification issue.

I do not want to presume to speak for another poster, but perhaps that is what QDROphile was trying to say (in QDROphile's own subtle way).

The employer can leave the plan at risk of disqualification.

[R. Butler]

I appreciate QDROphile's subtle replies.

[Brenda Wren]

There are many posts on this subject. I believe you'll find Notice 2003-44 helpful. Although I don't agree (at all!) with the IRS fix for this situation, apparently the "anyone but the employee is accountable" attitude of the IRS and DOL is that not only does the employer need to fund the missed deferral for the employee, but the match and earnings, too! So all you have to do if you're an employee is hope and pray that your employer screws up and not only will you get the fatter paycheck, but you'll get a big windfall when they finally figure out what they've done. If you're real lucky, they'll give you earnings on the fund that produced the highest return!

I've heard that the IRS has been criticized for their position and may be changing it in the future......50% of the missed deferral, 100% of the match. Still not good enough in my opinion.

[E as in ERISA]

I've heard an IRS employee jokingly say that they don't like to look at their paychecks. So their position is based on the fact that they don't want to force other employees to look at their paychecks and find errors either.