Employer withheld 401k election amount twice

[Dkozer]

I elected to have 6% of my earnings withheld to my 401k, however, my employer has been making that 6% deduction twice each pay period for the past 8 months. It was just discovered when I raised my election to 20%. Now my employer tells me they have deactivated my 401k withholding and I will not be able to contribute until  6% of each of my upcoming pays equals the amount that they over withheld. I have no issue with the amount they over withheld staying in my 401k as is and just moving forward with my new election percentage, however, they say it is not possible. Is it acceptable for this employer to keep me from putting money into my 401k because of a mistake they made? I am over 50 years old.

[TPAJake]

I don't think that is the method I would recommend for such a situation...  

[RatherBeGolfing]

What is their justification?  It is much easier to tell them they are wrong if we know what basis they think they have for their solution.

 

[duckthing]

So they're planning to fix their failure to correctly implement your deferral election by also failing to implement your new deferral election? Did they put this in writing, and was there any explanation?

[MoJo]

Your employer is wrong.  Under no scenario that I can think of is their "correction" plausible.  Ask for their rationale to not abide by your "current" deferral election - that is an issue INDEPENDENT of what they should be doing to correct the past.

If all else fails, call your closest DOL office and ask to speak to a "retirement plan benefit consultant" and tell them your story.

[Belgarath]

I can see them saying they won't withhold any more until your new 20% election is used up - for example, salary during the error period was 50,000 - they should have withheld 3,000, but instead they withheld 6,000. So there is a 3,000 excess. Now your new election is 20%. Until such time as 20% of your pay under the new election equals 3,000, they don't withhold anything. That seems like a reasonable and appropriate correction.

It does not seem reasonable to refuse to honor your new 20% election until the "correction" is made based upon an ONGOING 6% assumption, even though you have elected a new percentage. As alluded to above, I would push this, and ask for a WRITTEN explanation.

[david rigby]

Check the plan SPD.  It will summarize the plan procedures for a "claim". (That is an important word.)  Best to avoid throwing stones; this could be an off-the-cuff comment from someone in HR who is making an assumption on the proper "correction" method.  By making an official claim (written is important), your inquiry will (should) be bumped up to the administrative committee that has actual responsibility.

[Dkozer]

Thank you all for your input. As for the question of did they put it in writing...here is a cut of the email I was sent by HR:

"Per our 2017 semi-annual 401k audit and due to an error on my behalf, you have over-contributed to your 401k plan for 2017 in the amount of $3010.78 as of 06.09.2017. Therefore, your 401k contribution withholding has been inactivated until the amount of $3010.78 has been reached. This will be calculated based upon your bi-weekly wages and your previous contribution rate of 6%.  Updates will be provided every paydate via email until the over-contributed rate is reached.  Your new election rate of 20% will not take effect until after the amount has been satisfied. Attached is your information as of 07.07.2017.

Should you have questions or concerns, please do not hesitate to contact me. Thank you and I apologize for any inconvenience this may cause."

So, with them handling the correction in this manner, it will take the remainder of the year for the payback and I will be unable to contribute anything more than that this year. I called her and spoke to her and was told this was how they must handle it because if they get audited they can get in trouble. I am not familiar with how the irs deals with errors made so I feel I have to accept their remedy...or at least, that is what they expect me to do.

 

 

[Mike Preston]

You need to do something to get her to escalate the issue to somebody who knows what they are doing. See Belgareth's post.  Perhaps a response something like the following:

"Thank you for your email.  I would like to formally request that you take a different action than what you have proposed. Instead, I would like to suggest that you not withhold any more until my new 20% election makes up for the amount that was overwithheld. That is, until such time as 20% of my pay under the new election equals the amount that was overwithheld, nothing further will be withheld.  Please consider this request as a formal claim for benefits under the Plan."

Optionally, you could include a numerical example, but that might be overkill at this point.

 

[Dkozer]

Thank you Mike, I like your idea.