Correcting Single Missed Payroll Deferral

[401 Chaos]

Due to glitch in shifting over to new payroll system / software, a relatively small division had their 401(k) deferral missed for a single pay period. The employer realized the mistake right away and informed all participants of the problem and that they intended to simply double up on the 401(k) deductions the next pay period so people should anticipate having double taken out from pay the next time and so hold on to the extra pay now.

Anybody been through a similar issue. Is this sort of self-correction possible or would the IRS say they clearly needed to correct by treating the pay period as a missed contribution with the company kicking in 50% of the missed amount?

How would you expect the plan's auditors to react to this corrective action if the overall amount was small relative to the overall plan amounts?

[ETA Consulting LLC]

Anybody been through a similar issue. Is this sort of self-correction possible or would the IRS say they clearly needed to correct by treating the pay period as a missed contribution with the company kicking in 50% of the missed amount?

Your correction appears entirely appropriate since the failure was addressed immediately and there is enough time to allow each participant to make up the additional deferral before the year ended. Rev Proc 2008-50 addresses a 9 month make-up period, but that is for missing up to 3 months of deferrals. Allowing participants to adjust after only one missed payroll seems appropriate.

How would you expect the plan's auditors to react to this corrective action if the overall amount was small relative to the overall plan amounts?

Don't know, but would imagine after to clearly document the failure and the steps imployed to correct it; you should be fine. The only exception would be where the failure is somewhat eggregious and the methods of correction fail to address the seriousness of the issue. In this instance, I think your proposed correction would suffice.

Good Luck!