Missed Deferrals

[coleboy]

Client pays employees commissions out of which comes the elected 401k deferrals. It was discovered at year-end that deferrals were never taken out of those commissions. 

Two questions, under the Revenue Procedure 2015-28, would the QNEC be 50% or 25% of the missed deferral since it was discovered at the end of the plan year? 

Secondly, the payroll company has said that they might be able to re-do the W-2's of the employees involved if the employees wanted to make up the difference between the client's QNEC and the amount of the deferral that was missed. That would involve the employee actually giving back some of the money that he earned.

Please advise.

 

Thank you!

[Mr Bagwell]

2 hours ago, coleboy said:

Secondly, the payroll company has said that they might be able to re-do the W-2's of the employees involved if the employees wanted to make up the difference between the client's QNEC and the amount of the deferral that was missed. That would involve the employee actually giving back some of the money that he earned.

Uh, no!  This is not an acceptable practice. 

[coleboy]

My sentiments exactly. I had to ask since my boss owns a payroll company. Thank you!

[coleboy]

Ok, the client is basing his corrections off Rev. 2013-12 that goes with the 50% correction. I feel that the Rev. Proc. 2015-28 is the one that should be used as it's the most recent. The client is going by the example which, to me, is outdated especially when they're using 2006 salaries in the example.

So which Rev. Proc. should prevail?

[Mr Bagwell]

Look up Rev Proc 2016-51.  It's even newer yet.