Employer incorrectly capped my contributions

[HL]

My employer notified me that they had mistakenly limited my total eligible contributions at $56,000 instead o f$62,000 (I am 60 and maxing out after-tax) for 2019 and did not withhold my contribution for two pay periods - 11/28 and 12/13.  The first was before the error was discovered, and the second was after the discovering the error and notifying me. Unfortunately for reason I am not aware of,  they did not update the payroll system for the second pay period resulting in the second missed contribution. I have one more contribution opportunity for the year (12/27).  My employer claims that they are only required to make a contribution of 25% of the missed contributions which were mistakenly not made. This amount, combined with a maximum deferral on my part on 12/27 will leave me short for 2019 by $1,049.  I am trying to find which section of this https://www.irs.gov/pub/irs-drop/rp-18-52.pdf applies to my case.  I see some cases that might apply and put them at 40% instead of 25%. Any pointers would be appreciated. 

Also, are these percentages specific amounts required and that cannot be exceeded, or are employers allowed to make up the missed deferrals beyond the prescribed percentages if they choose?

Thank you - Harry

[Old Lawyer]

You may wish to see a lawyer because the IRS 25% safe harbor applies only to  missed payments extending more than three months.  My reading of the IRS rules, including the Appendix, suggests that, in the case of the shorter period you describe, the erroneous payments should be corrected in whole, e.g., by deduction from your next pay on 12/27. You can also have a lawyer discuss whether there is a fiduciary breach by the employer under ERISA in failing to follow plan documents, including employee elections, even though compliance with an IRS safe harbor protects the plan from disqualification.

[Nate X]

FYI: Rev. Proc. 2019-19 supersedes Rev. Proc. 2018-52

https://www.irs.gov/pub/irs-drop/rp-19-19.pdf

Keep in mind that this correction program is considered as guidance.

If you were not notified until after the end of this year when it was too late to make up the missed deposit, then Appendix A.5(4) would apply (50%).  Since you were able to "make up" (at least in part) of the amount missed on you last pay check, then I would think that Appendix A.5(9)(a).  As long as they gave you proper notice, no corrective contribution would be due.  If your pay was not high enough on your last paycheck to make up the entire amount, then I would think that Appendix A.5(4) would apply that amount you couldn't make up. 

Since there is not straight answer on this, I would guess that they either (1) chose to meet in the middle of 5(4) or 5(9)(a) at 25%, or (2) chose to apply 5(9)(b) instead.

 

 

 

[Old Lawyer]

Rev. Proc. 2019-19 modifies Rev. Proc. 2018-52, but does not alter Appendix A .05. Appendix A.05(4) does not seem to fit the fact pattern because there was an opportunity to elect a catch-up payment.  Appendix A.05(5) applies when there is an election, as described here, but there is a plan failure to make the contribution.  Again, the IRS rules address qualification only, not the fiduciary duty of plan administrators to correct deficiencies so that the plan is implemented as written. ERISA 404(a)(1)(D).