Missed Deferral and Match

[Guest 401knewbie]

I am completing the testing on a brand new plan - 2006 was it's first year. On 8/2006 two employees signed up for deferrals but never had it withheld. There is a payroll to payroll match.

What happens here? Does the company have to make a match because they missed the deferral? What if the amount is too big for a one time contribution for the participant and they don't want to make up the deferral, does a match still need to be made?

[401_4_ever]

See Rev Proc 2006-27, under exclusion of eligible employees. An EPCRS program is needed.

[PMC]

Since these employees "signed up" for elective deferrals and presumably indicated a percentage or dollar amount to be withheld and it wasn't, is the correction the same as exclusion of an eligible employee (1/2 ADP and whole match)? Or should the entire amount the employee elected to be withheld be contributed?

[Jim Chad]

See thread on Jan 3, 2007 called missed deferrals.

I don't know how to link it to here. Can someone tell me how to do that?

[Jim Chad]

I just found in the 2006 ERISA Outline on page 15.647:

IRS generally recommends that the employer make up the deferral and any related match, though the employee will have more take home pay than he otherwise would have.

See IRS Q&A 38 of the ASPPA 2005 annual, conference in Washington DC

The book than goes on to say that if the employee shares responsibility, either because of the length of time or becasue there is evidence he knew, a case could be made to not put in the deferrals. The employer would only put in the match or ask the employee to put it in this year after tax. There are several more paragraphs of discussion about how this could be fixed under VCP or SCP.