Catch-up and payroll companies

[K2retire]

All deferral elections are made online through payroll company software. The payroll company claims it is not possible to have different deferral limits based on date of birth, and therefore requires separate elections for deferrals and catch up contributions. 

Participant elected to defer 7% of pay. That would have yielded a total contribution of $18,740.03, but for the payroll company requirement that catch up be elected separately. (It is not yet known if the participant intended to make a catch up contribution.)

Does this require a correction because less than 7% of pay was withheld? Or is it permissible to require a separate online election for catch up contributions?

[Flyboyjohn]

I assume the payroll company/software cut them off at $18,000 since the participant hadn't made a separate "catch up" election.

If the requirement to make a separate CU election was clearly communicated to participants (hopefully on the election form) I don't think you have a make a correction.

We have the same problem with our payroll company (Ceridian) and it irritates the heck out of me.

If I don't remember to go into the system and make my CU election after the $18,000 is withheld I won't get it.

[ETA Consulting LLC]

That's just lazy on the payroll provider's part. I've never considered a catchup is anything other than an increase in the deferral limit for those who are age 50 and over.  If you are, then your limit is $24,000 (and if you're not, then your limit is $18,000).  So, my issue would be that the notion of a separate election being required because they arbitrarily decided to curtail someone's deferrals before they met their statutory limit is unacceptable.

At the end of the day, this is a reflection of free market forces at work.  If you can do this and retain your clients, then good for you. I won't try it :-)

Good Luck!

[RatherBeGolfing]

If the plan allows for catch-up contributions and the participant elects 7%, and 7% is within the allowable limits for the participant, can you justify not doing 7%?

Are the instructions/forms clear on the issue when the participant elects what to defer?

If you vendor cannot do what your plan permits, you need a different vendor...

[Bird]

Quote

If you vendor cannot do what your plan permits, you need a different vendor...

Easy for us to say, and I agree, but in the real world there are no consequences for such errors, unless it comes down to a monetary issue.  The plan sponsor sees it as us arguing with the p/r company over how many angels fit on the head of a pin.

[K2retire]

This plan sponsor changed payroll companies at the beginning of 2016 because their prior company was calculating compensation wrong for years. That VCP filing cost them about $50,000 in QNECs and missed match.

They are not happy that there are new and different issues with the new provider. It's not rocket science -- why can't payroll companies follow the regs?