Employer switched participants deferrals

[khr]

A participant filled out an election form and elected 10% to be withheld while another participant filled out the EF electing 0% withholding. The employer switched the participants deductions so the 0% participant had 10% withheld.

Is a refund necessary to the 0% participant or is there a different solution for this?

[Lou S.]

How many payroll are you talking about?

Can you run a "negative" 401(k) contribution equal to the amount withheld? If so that should fix the W-2 and make the 0% person "whole" accept for any lost earnings.

Forfeit the amount in the plan and use it to fund some or all of the QNEC for the 10% person.

[QDROphile]

I don't think the correction for the 10% person should be labeled "QNEC"

[Lou S.]

I don't think the correction for the 10% person should be labeled "QNEC"

Probably correct. Is this part of the new guidance on missed deferral opportunities?

For some reason I was thinking the employer would have to make a QNEC for the failure to implement the participant's election. Though maybe I'm wrong on that.

[Kevin C]

We don't have enough information to be able to tell if it applies, but there an exception under EPCRS (as recently updated) for brief periods of exclusion. If the exclusion of the person who elected 10% fits the criteria for it, they won't have to make a QNEC deposit to correct the missed deferrals. The 10% person does need to get the match he/she would have received if the deferrals had been done correctly.

With the regulations prohibition on pre-funding deferrals and match, the best course of action for the 0% person is probably to refund the erroneous deferrals and income.

[khr]

This happened during the course of 6 payrolls (April, May & 1st pay of June). It was discovered by the employer and the deferral elections have been corrected so I believe there is no need for a QNEC.

I will go ahead with the refund to the 0% participant. Thank you for the help.

[austin3515]

you know what we need is a decision tree for corrections of missed deferrals. IF this then that. Has anyone heard of anyone putting one together? Maybe I'll email Relius... I think that would be bookmarked along with the rollover charts and the cola limits!