Correcting Wage Overpayment and Contributions made in error to 401(k)

[Guest JWIRA]

Hi! If an employer overpays wages and as a result makes a larger than usual employee contribution and employer matching contribution to a 401(k) plam, how should this best be corrected? The employer has proposed that the employee will repay the excess wages and employee contribution via check or payroll deduction over a period of time. This does not seem to correct the problem that the money should not be in the 401(k) account. The error happened with a small number of employees at a very large employer. Thanks, JWIRA

[BG5150]

The money should be taken out of the participant's account and put in a suspense account. The dollars should then be used to offset the employer's next contribution.

(At least, that's the way we do it.)

[Bird]

If the wages were simply overpaid, and they're simply going to reduce future wages, then won't the 401(k) issues fix themselves? I mean, if someone elected 5% as a deferral, and the company overpaid the wages and put in 5% of the overpaid wages, unless they're asking for the money back, and they're not, I don't see a problem.

[stephen]

I agree with Bird on this one.

[Christine Oliver]

What if the participant repays (Gross less SS and Medicare) the overpayment in the following plan year/calendar year? Does that require a manual adjustment to the prior year's deferrals via a 1099R, match, and employer non elective contributions