Participant changed election to 0% but deductions were still taken from his paycheck

[Trisports]

The participant changed their election in 2021 from 3% to 0% but the payroll continued to deduct 3%.  The failure was discovered in 2023. The plan has no match and is subject to ADP testing.

How should we correct. technically, these were impermissible deductions.  Are we supposed to return the contributions + earnings/losses to participant and re-run the ADP testing?  

 

 

[Bri]

Sounds like a reasonable correction method....

[MoJo]

2 hours ago, Trisports said:

The participant changed their election in 2021 from 3% to 0% but the payroll continued to deduct 3%.  The failure was discovered in 2023. The plan has no match and is subject to ADP testing.

How should we correct. technically, these were impermissible deductions.  Are we supposed to return the contributions + earnings/losses to participant and re-run the ADP testing?  

 

 

Just curious as to why the participant didn't say something for TWO YEARS?  I'm not sure I'd want to hang my hat on this but our statements and other confirms say after two notices that evidence the error everything is presumed to be "correct."

[Paul I]

EPCRS calls these Excess Amounts with respect to employee deferrals and prescribes a refund to the employee with earnings.  The refund is taxable to the employee in the year the refund is made, and the amounts are not included in any of the compliance tests.

Unfortunately, there is no rule for presuming everything is correct and using that presumption to refuse to correct an operational error. 

I have seen service agreements that included language that say if an error was due to someone other than the service provider and the error is not timely reported or corrected in accordance with the agreement, then the plan sponsor must pay for the full cost of the service provider's efforts to help make the correction.  Just another item where the terms of a service agreement may not align with the operational requirements of the plan.