Designated Roth Contribuitons

[Guest Lori J]

A deposit has been made the wrong money type in a 401(k) Plan. The participant elected to defer Roth contributions into a plan, however, payroll coded it improperly and the money was deposited into the participants pre-tax salary deferral money type instead. I have not found a corrective process. Has anyone else had this happen and how was it handled. Also, where did you find the corrective process that provided the guidance.

Thank you!

[masteff]

So is it a payroll error, meaning the deduction wasn't taken correctly out of the paycheck (ie pretax vs aftertax)? Or is it a recordkeeping error, meaning the money was simply posted to the wrong source code?

If it's a payroll error, then fix it thru payroll and the adjust the sources. If it's a recordkeeping error, then simply transfer the money to correct source. Fix the recordkeeping on a share basis so the money's not distorted by market changes.

Then make sure that payroll has the coding corrected so it doesn't happen again.

[Guest Lori J]

It was handled incorrectly at the payroll level and deposited to the wrong source.

My concern is that they failed to follow the withholding instructions of the participants, that would be an operational error. And I could not find anything that address that type of operational error.

So is it a payroll error, meaning the deduction wasn't taken correctly out of the paycheck (ie pretax vs aftertax)? Or is it a recordkeeping error, meaning the money was simply posted to the wrong source code?

If it's a payroll error, then fix it thru payroll and the adjust the sources. If it's a recordkeeping error, then simply transfer the money to correct source. Fix the recordkeeping on a share basis so the money's not distorted by market changes.

Then make sure that payroll has the coding corrected so it doesn't happen again.

[masteff]

It was handled incorrectly at the payroll level and deposited to the wrong source.

My concern is that they failed to follow the withholding instructions of the participants, that would be an operational error. And I could not find anything that address that type of operational error.

Guess we should stop and clarify... did this just happen in the last one or two pay periods or does this go back much further? If it's one pay period ago, then use the administrative fix which is to run it thru the payroll system to correct the taxes. You then fix the recordkeeping so the right number of shares are in the right source. And lastly you take steps to ensure that the proper codes are in place in your payroll system and that your payroll department is properly trained in setting up Roth deductions.

If the problem goes much farther back, then you'd go thru a longer analysis to figure out what corrections are available to you.