payroll company messed up

[thepensionmaven]

Client informs me payroll company took out too many deductions from employees' pay so employer has been calculating co. match on incorrect salaries for about 6 months. Company contribution made at the same time employee contribution.

If I am reading the IRS methods of correction correctly, there would be no corrective contribution of 50%, but obvious the company must recalculate the match on the correct incomes and make the contributions to the employees' accounts plus missed investment income from date match was actually made?

As far as rate of earnings, is there some sort of "safe harbor" like 5%??

And, the payroll company is marketing 401K administration!!

[Bill Presson]

If too much was contributed, why is there any corrective contribution?

[thepensionmaven]

Not enough was contributed as too much was deducted from his pay so pay was understated for the match.

[hr for me]

Were the deductions for 401k deferrals or for other payroll deductions that come out of the 401k earnings definition? Otherwise this scenario doesn't make sense to me!

Or are you saying the match formula (or earnings it is calculated on) isnt' the same formula for the deferrals? So you match more on those that defer less? I hope not... Honestly I haven't seen any plan where the match compensation is different from the deferral compensation! I guess I am not understanding how your deferrals could be correct and your match could be wrong

(While I don't support payroll companies doing 401k administration, I strongly support someone in HR/Benefits checking payroll registers for deductions/earnings that affect the plans they administer! I always wonder how it takes 6 months to find an error. But I guess because I am over both HR and payroll, I tend to review them from both viewpoints and never assume payroll has anything correct without confirmation!)