Payroll Error

[KateSmithPA]

Participants are paid weekly. This week, for some reason, the deferrals were not withheld from the participants' wages. This is a one time error - they have already fixed the problem for next week.

Does the employer have to contribute 50% of the deferrals that should have been withheld, or, can they double up on next week's payroll? If doubling up is okay, do they need to notify the participants? This is a large plan which is why that question comes up.

Are there other options?

Thank you.

Kate Smith

[Guest Sieve]

I do not think the EPCRS fix would be required in this instance, which was a one-time (hopefully) payroll glitch . . . Doubling up might be harsh, in some instances, so I don't think I'd take that approach. I'd spread the missing deferral proportionally over the remainder of the plan year's payroll periods.

The problem comes with the match, if there is one and if it's based on payroll compensation. You have to somehow make certain that the full amount of this missed deferral is matched just as it would have been had it been properly made, even though it's made in a different manner. This may take hands-on patches to the system, and may be reason enough not to prorate the missed deferral but to fix it one-time as a double-up next payroll.

[jpod]

With a large plan, you will have people coming and going, so the idea of unilaterally spreading out over a long period seems imperfect, not to mention complicated.

I do not recommend the EPCRS approach. I have nothing to back this up, but I find it hard to believe IRS would disqualify the plan or force it into audit cap over a single pay period failure like this. However, I think you need to do something; specifically, notify the affected employees of the error, and remind them of their right to increase future contributions if they wish to make it up. Also, if you do a pay period by pay period match, I would give them the match as if they had contributed for that pay period. I think this will get the plan off the disqualification hot seat, even if it doesn't work perfectly because some people choose not to make up the missing deferral, or can't make it up because they've terminated.

[Kevin C]

EPCRS has a correction method for brief exclusions. Here is a prior discussion.

http://benefitslink.com/boards/index.php?showtopic=41860