Correction for Deferrals not Deducted

[Guest cke66edy]

Employer stopped deducting (for a handful of participants) according to elections for last pay period of December and the first three pay periods of 2011. Suggestions on the best way to correct this?

[MARYMM]

Employer stopped deducting (for a handful of participants) according to elections for last pay period of December and the first three pay periods of 2011. Suggestions on the best way to correct this?

I would discuss with ERISA counsel and/or recordkeeper but here is what the correction process appears to be:

Internal Revenue Bulletin: 2008-35

September 2, 2008

Rev. Proc. 2008-50

5) Failure to implement an employee election. (a) Missed opportunity for elective deferrals. For eligible employees who filed elections to make elective deferrals under the Plan which the Plan Sponsor failed to implement on a timely basis, the Plan Sponsor must make a QNEC to the plan on behalf of the employee to replace the “missed deferral opportunity.” The missed deferral opportunity is equal to 50% of the employee’s “missed deferral.” The missed deferral is determined by multiplying the employee’s elected deferral percentage by the employee’s compensation. If the employee elected a dollar amount for an elective deferral, the missed deferral would be the specified dollar amount. The employee’s missed deferral amount is reduced further to the extent necessary to ensure that the missed deferral does not exceed applicable plan limits, including the annual deferral limit under § 402(g) for the calendar year in which the failure occurred.

http://www.irs.gov/irb/2008-35_IRB/ar10.html#d0e951

[Guest cke66edy]

Employer stopped deducting (for a handful of participants) according to elections for last pay period of December and the first three pay periods of 2011. Suggestions on the best way to correct this?

I would discuss with ERISA counsel and/or recordkeeper but here is what the correction process appears to be:

Internal Revenue Bulletin: 2008-35

September 2, 2008

Rev. Proc. 2008-50

5) Failure to implement an employee election. (a) Missed opportunity for elective deferrals. For eligible employees who filed elections to make elective deferrals under the Plan which the Plan Sponsor failed to implement on a timely basis, the Plan Sponsor must make a QNEC to the plan on behalf of the employee to replace the “missed deferral opportunity.” The missed deferral opportunity is equal to 50% of the employee’s “missed deferral.” The missed deferral is determined by multiplying the employee’s elected deferral percentage by the employee’s compensation. If the employee elected a dollar amount for an elective deferral, the missed deferral would be the specified dollar amount. The employee’s missed deferral amount is reduced further to the extent necessary to ensure that the missed deferral does not exceed applicable plan limits, including the annual deferral limit under § 402(g) for the calendar year in which the failure occurred.

http://www.irs.gov/irb/2008-35_IRB/ar10.html#d0e951

Thank you. Would this be considered an operational failure eligible for self correction?

[QDROphile]

Incomplete answer if you want the "best" fix, but you will find what you need in Rev. Proc. 2008-50.