PayChex Problems - 125 Excluded from 401k Calc

[austin3515]

This is the 2nd client we have recently discovered that is using PayChex and they are calculating the 401 AFTER reducing wages for 125 contributions.  So John's comp is $10,000 a month and $1,000 is withheld as pre-tax 125.  His 401k is calced as (10,000 - 1,000) * 5% = $450.

When we inquired, they checked with their "experts" who confirmed that what I described above is indeed the way it is supposed to be calculated.

Obviously they are wrong, I am wondering if anyone else out there has had this problem.

Ironically, I just posted in the SIMPLE boards the other day my shock and amazement that what I described above is indeed a requirement for SIMPLE IRA plans, so I presume somehow this is part of the issue with PayChex.

[hr for me]

Maybe I am being too simple here, but shouldn't Paychex's calculation be dependent on the compensation definition (and choices) in the plan document since the employer can generally chose differing definitions to base deferrals on - (the 4 section 415 definitions of compensation then 414s definitions plus 3 possible modifications under safe harbor plus other modifcations subject to testing)? 

 

[TPAJake]

"Should" is not a word that Paychex or ADP or any other mega-payroll co cares about.  We have had all sorts of problems with these companies lately.  I even had ADP pretend they didn't know what a safe harbor basic match was the other day & they made the client submit a spreadsheet of example calcs--Really?  After all that, they could not get their system to match the Roth deferrals in the same manner as the pre-tax.  I'll never understand the appeal of these payroll giants.

[Bill Presson]

21 hours ago, austin3515 said:

This is the 2nd client we have recently discovered that is using PayChex and they are calculating the 401 AFTER reducing wages for 125 contributions.  So John's comp is $10,000 a month and $1,000 is withheld as pre-tax 125.  His 401k is calced as (10,000 - 1,000) * 5% = $450.

When we inquired, they checked with their "experts" who confirmed that what I described above is indeed the way it is supposed to be calculated.

Obviously they are wrong, I am wondering if anyone else out there has had this problem.

Ironically, I just posted in the SIMPLE boards the other day my shock and amazement that what I described above is indeed a requirement for SIMPLE IRA plans, so I presume somehow this is part of the issue with PayChex.

Austin, well they CAN do it differently, because they're deducting it correctly on our payroll. They do the payroll, but not our plan. We have a 125 plan as well. I just looked at my most recent pay stub.

[K2retire]

We recently did a VCP filing for a client who had been using ADP. They ended up having to pay over $50,000 in QNECs and missed match because ADP didn't think taxable group term life premiums should be included in gross wages. So every year when we asked the client for gross wages they gave us the wrong amount.

[austin3515]

I know -they don't include it in gross!!  I think I had a client tell me about years ago, and they add it back separately now each year.

[Eric Taylor]

Not directly on point but also involving a former PayChex client in the restaurant business that recently moved to a new payroll provider.  According to new payroll provider the client had been handling (having payroll handled) incorrectly for years because of the way they dealt with tipped employees who did not have enough in regular wages to cover benefit plan and 401(k) plan deductions.  Sounds like there are lots of potential areas of confusion / noncompliance out there.