401k Contribution Deposited but Never Deducted

[emmetttrudy]

Often you see a case where an employer deducts a 401k contribution but fails to deposit it or deposits it late into the plan.

What about this situation? An employee completes a deferral election form and the client begins to deposit contributions to this participant's account on a payroll basis (about $600 over 3 months). At some point the employer realizes that even though they were correctly depositing the funds to the participant account they were not deducting them from the participant's paycheck!

What is the best way of going about fixing this? Have the employer deduct the full amount from the next paycheck? Can they spread it out over the remaining paychecks, in addition to the regular deferral? Is there a better way?

[Bill Presson]

To me this is a payroll issue and not a plan problem. I would refer it back to their CPA and payroll company to decide how to fix.

[jpod]

It's a state law question. You need to consult an employment law attorney who can tell you whether it is ok to unilaterally take that money out of pay. Yes, I know the employee authorized it in the first place, but that may not be enough to allow for a double-dip going forward.