What is the correction when a plan sponsor, for 7 months, does not wit

[John A]

A participant submitted a deferral election form, which the plan sponsor also signed, in July of 1999. The participant just noticed that deferrals were not being withheld from the paycheck and informed the plan sponsor. The plan is a calendar year plan. What is the correction?

[Guest slipps]

The happens more often than I care to know about. The most conservative practice is for the employer to make up the missing contribtion with earnings. This was actually done after an IRS audit discovered the error.

I think this is a harsh solution, but it is the safest. I be interested to know of any more reasonable solutions.

[Guest]

see Question 117 under correcting plan defects Q & A, for possible solution

the Q & A board is a very good spot to look for some possible answers to these questions as well!

I figure people just might not know these are available!

[Guest BJH]

This is also a prohibited transaction which is subject to a 15% excise tax. A Form 5330 must be filed. The employer should contribute the lost earnings to the participants' accounts.

[QDROphile]

Don't take it for granted that the situation involves a prohibited transaction. Could well be a difference when the employer completely fails to execute the deferral instruction. Compare to an employer that reduces pay but does not forward the funds to the trust.

[Guest BJH]

Right, QDROphile. I assumed (maybe incorrectly) that the money was withheld by the employer and simply not turned over to the trustee. If the money was never withheld, there is no PT, just bad plan administration.

[Guest Meg H]

John A, how did you end up handling this? Does anyone know if this type of administrative error would fall under the "exclusion of eligible employees" section of Revenue Procedure 99-31?

[John A]

If I remember correctly, the employer made a correcting contribution equal to the deferral election for the 1999 missed deferrals, but I do not remember how the missed 2000 deferrals were corrected. APRSC documentation was done.