The Fix for Missed Deferrals - Confirmation

[401king]

An employee elected to defer $25 per paycheck in mid-2006. His deferrals were never taken from salary; plan has been Safe Harbor (basic match formula) for the whole time. He terminated employment earlier this year. He never noticed the deferrals were not taken, and called recently for a distribution, only to find he didn't have an account balance.

So, I believe the correction is to have the employer contribute the full match that was missed (+/- gains/losses) and 50% of the missed deferrals as a QNEC (+/- gains/losses).

My question is to the time period which should be looked at. Can we assume that the employEE should have noticed this mistake when filing his 2006 taxes? Or do these corrections need to be made from the date he signed up for deferrals through his termination date?

The examples I've read only seem to refer to a single plan year, in which the examples seem to assume that the error was noticed after the year ended, as opposed to after the employment ended (3 years later).

Thanks in advance.

[Guest jims]

My understanding is you need to cover the whole time the employee was excluded.

[jpod]

I agree; entire period.

Just curious, what is pay period: bi-weekly, weekly? Coud end up being a nice little chunk of money with earnings.

Does plan say that elections continue from year to year automatically unless modified, or must the participant make a new election for each plan year (in which case the bleeding stopped at the end of 2006)?

This is the problem with the IRS' correction methodology: it rewards ignorance at the employer's expense. (Or, maybe the employee was crazy like a fox.)

[401king]

The payroll is per pay period bi-weekly. Conveniently the employer stated they'd never received the forms; unfortunately for them their signature is on the employee's deferral agreement. It's unfortunate that he called to request the distribution because he was laid off, so clearly the company is struggling. Now they're looking at about a $3,000 bill to fix the problem; an expense that could have cost them $2,000 over three years.

[WDIK]

The payroll is per pay period.

Our tautology of the day.

[pmacduff]

Thanks WDIK - I learned a new word today...always thought English was a strong point for me but...for those who were wondering as I was; I found this:

Tautology (rhetoric), repetition of meaning, using dissimilar words to say the same thing twice, especially where the additional words fail to provide additional clarity and meaning.

[K2retire]

As in repetitious and redundant?