payroll company will not match 401k contributions

[TPApril]

For final payroll of the year, owner increased 401(k) and maximized catchup capabilities - deposit was made.

Payroll company would not in turn honor that deposit because the plan sponsor was not configured in their system to allow for catchup. They proceeded with they payroll they wanted.

We are at a stalemate. Payroll company telling owner to withdraw that amount but we are saying no.

Think it would be fine to submit to tax preparer actual contributions which do not match the W-2?

(not looking for commentaries on payroll companies, just trying to describe situation)

[Bird]

10 hours ago, TPApril said:

For final payroll of the year, owner increased 401(k) and maximized catchup capabilities - deposit was made.

It sounds like he thought he did but he really didn't.  Exactly how did he "increase and maximize" those contributions?  Someone screwed up and didn't do it.  Either poor communication by the payroll company that he couldn't do what he tried, or poor communication by the owner or his staff to communicate to the payroll company.  I don't know that you can un-ring that bell, especially at this late date.  If the payroll company dropped the ball, you might pressure them to re-run the payroll, but that's a systems question.  I don't think you can proceed with an unmatched W-2.  Sometimes when owners don't max out on deferrals we can increase profit sharing to make up for it...

[RatherBeGolfing]

Is the plan set up through the payroll company, or are they just doing the payroll?

[401king]

Have you provided them the Plan Document showing that the Plan accepts Catch-Up contributions? An administrative error (forgetting to check a box) should not override the Plan Document. 

[TPApril]

Payroll does not process 401k contributions. They take the percent he tells them and they run it through their system. So contribution was made assuming payroll company was informed timely.

Amount was deposited as a 401(k) contribution. W-2 will not match.

Is transferring that amount to his ER account allowed? Note that amount is ~$500.

[BG5150]

The W2 and contributions in the 401(k) plan should match.  Therefore, the owner seems to be out the catch-up in the plan, because it was never withheld.

However, now we have an operational defect in the failure to implement a participant election.

See the latest and greatest version of EPCRS to proceed.

[401king]

1 hour ago, TPApril said:

Is transferring that amount to his ER account allowed?

Have you given an equivalent, pro-rata contribution to the employees? If not, then as I understand it would be viewed as discriminatory by funding an owner before the employees. 

[Bird]

18 hours ago, TPApril said:

Payroll does not process 401k contributions. They take the percent he tells them and they run it through their system. So contribution was made assuming payroll company was informed timely.

Amount was deposited as a 401(k) contribution. W-2 will not match.

Is transferring that amount to his ER account allowed? Note that amount is ~$500.

For $500, I'd call this a lesson learned.  People should be making deposits based on a payroll report, not some assumption.  (And they should be using a payroll company that says "hey you need to set this up right or it won't happen" instead of just processing and cutting off; that's pretty pathetic...but you asked to not comment on payroll companies.)  A mismatch will almost certainly, I think, result in IRS correspondence, and if an accountant is involved, the fees will immediately exceed the potential tax savings, and frankly, I don't think he has much of a case anyway.  I suppose if he wants to hold his company liable for failing to withhold as he requested he could go that route and then EPCRS, but frankly that's more than a little nutty IMO.

You could definitely shift it to the ER account, especially if that amount or % wouldn't have to go to others. Even if you wind up giving something to others as a result, I personally would not be worried about the timing issue for the amount of money we're talking about.

I must say that none of this makes sense; initially you said he tried to maximize catchup and now you're saying $500 is involved so I am actually not sure about any of this.

[RatherBeGolfing]

On 1/23/2017 at 9:10 PM, TPApril said:

Payroll company would not in turn honor that deposit because the plan sponsor was not configured in their system to allow for catchup. They proceeded with they payroll they wanted.

This is the part I'm struggling with.  From what I'm reading the payroll company's involvement with the plan is limited to producing the W-2, is that correct?  I'm not in  HR or payroll but is there some law or regulation that prevents the payroll company from correcting a mistake in the payroll?  For whatever reason it sounds like it just wasn't set up right on their system, but I don't see why that can't be corrected.

[Belgarath]

Just guessing - it falls outside the pigeonholes, and it would require someone who actually knows something to do some extra work. I know in a prior life at a large corporation, reversing certain transactions could take two or three days, as each "step" had to go through overnight batch processing, then be checked the next day to make sure the system had properly updated, then do step two, wait overnight, etc...

The service folks hated those.

[RatherBeGolfing]

2 minutes ago, Belgarath said:

Just guessing - it falls outside the pigeonholes, and it would require someone who actually knows something to do some extra work. I know in a prior life at a large corporation, reversing certain transactions could take two or three days, as each "step" had to go through overnight batch processing, then be checked the next day to make sure the system had properly updated, then do step two, wait overnight, etc...

The service folks hated those.

But is it allowed?  I'm sure its a major pain, but if it isn't prohibited I don't see why the payroll company shouldn't correct it.  You may have to pay for it if you didn't fill out the correct check boxes but it would solve any plan issues.  And if they refuse, get a new payroll company.  On second thought, I would probably get a new payroll company either way.

[Bird]

I think it's allowed.  (But it's just an invitation to screw it up worse.)

[ESOP Guy]

This goes back to one of the basic ideas to me.  Why is the payroll company telling the plan and sponsor what can and can't be done vs the plan document and the sponsor telling the payroll company what needs to be done? 

The sponsor and the plan are the customer for crying out loud!  The plan document not the payroll company determine what can and can't be done in the plan.  The sponsor is most likely paying the bills. 

 

Yes, I understand the payroll company has its ways but if the 401(k) deferral was legit the payroll company needs to find a way to make the W-2 match reality instead of people trying to get reality to match what the payroll company wants to see happen. 

[shERPA]

What does the plan document say?  It governs the plan, not the payroll company's system.  If the document allows it and the Plan Administrator is the employer, then it is up to them to tell the payroll company what to do. 

If the payroll company persists, ask them to contact their legal department to point out that by exercising discretionary authority over plan document interpretation and plan operations, they are making themselves an ERISA fiduciary to the plan.  This may not get you anywhere, but it could be fun entertainment, at least if you're a pension geek like me.

 

[TPAJake]

I agree with shERPA--The tail (payroll co) does not have the power to wag the dog (plan).  Getting to the right person & getting it actually fixed is another issue entirely.  Personally, for $500 I would forget about 2016 & make sure the payroll company system is updated for the proper plan provisions for 2017 so it does not happen again.  But of course the biz owner probably disagrees.