Deferral correction

[BW]

This may have been covered previously. If so, sorry.

How would you handle the following situation.

An employee changes their deferral election from a high percent to a low percent.(e.g. 10% to 3%)

For some reason the employer fails to update the payroll system and the participant never complains. None of the regulatory limits are breached (no ADP, 415, 402(g) etc. failures)

This situation endures for several years, Mistake of Fact wouldn't apply.

Assuming there really is an operational failure, what action if any, would you take given the IRS guidance that assets should remain in the plan?

[BG5150]

Why not just let it be?

[Beemer]

We have a similar situation. It is a large plan and the auditor wants to know how to address this. I found something that said the deferrals should be returned to the participant and the match should be forfeited. I don't know how the deferrals would be reported on a 1099r (what code to use).

[Stable Two Financial]

We have a similar situation. It is a large plan and the auditor wants to know how to address this. I found something that said the deferrals should be returned to the participant and the match should be forfeited. I don't know how the deferrals would be reported on a 1099r (what code to use).

If you happen across the reference I'd appreciate it. My first reaction would be this approach but I couldn't find much support in EPCRS.

My question to the client was if your participant was contributing 15% but really meant for it to be zero.....

In my experience the participant would say something to somebody.

[Beemer]

In our case, the election form stated a monthly $ amount, but the client withheld that amount per pay period, which doubled the contribution.

The correction method I mentioned before was mentioned in an ERISA attorney's seminar. I found the seminar slides when searching this topic, but I would be more comfortable with an actual citation.