Missed Deferrals

[Guest jetfaninmn]

A participant filled out an enrollment form in 2000. On 12/31/06, yes 2006, he wanted to know why his 5% deferral was never taken out. The employer found the 2000 paperwork and called us.

What do we tell them and what are they liable for?

Thanks

[stephen]

See this thread

[Guest mjb]

what is the amount of 7 years of contributions plus interest?

[Guest Pensions in Paradise]

As far as I know there still is no formal guidance on how to deal with this type of situation. My position is that the employer should contribute the deferrals for the first missed year. After that first year, it is the employee's responsibility to ensure that his 401(k) deferrals are being made. I say this because the plan has to provide for at least an annual enrollment/modificaton period for participants to change their deferral elections. During the second year modification period the employee should have realized that his deferral was not being withheld and notified his employer. So in effect by not notifying his employer or making a new election, the employee agreed to a 0% deferral.

[PLAN MAN]

That is some creative thinking there. I applaud you in trying to suggest a solution. Unfortunately, you must be able to support your position with tax law or IRS regulations and guidance. And, most importantly, the plan document must support your approach. I don't think there is any way to support your suggestions.

[Guest mjb]

The employee should have realized that no funds were being contributed when he received his first payroll statement showing 0 contributions to the 401k plan and should have informed the employer immediately. The employee agreed to a 0% deferral when he failed to notify the employer of the failure to withhold 401k contributions. Most plan sponsors now now inform the employee of their obligation to review each payroll statement and notify the employer of any errors.

Plan man: where is the authority for your statement?

[401_4_ever]

Independent of the code and regs, how do you get around the operational failure created here for years 2-6? Does the document state new elections are needed every year?