Corrections process on errors

Hello,

In a recent audit, we discovered some errors that my employer made to participant accounts. Basically, some accounts were overfunded. The overfunded amounts are between $10-$1300) so we need to recoup those funds. Aside from informing the employee of the error, are we required to obtain their authorization to pull the funds from their account due to an employer’s mistake?

Fundamentally, the plan must be administered according to its plan provisions.  If there are operational errors, they must be corrected and each participant should receive the benefits to which they are entitled under the terms of the plan.

You do not indicate the reason there was over-funding to certain accounts and the number of participants that are affected by the error.  This information could be relevant to deciding the procedure to use make the corrections.

Thanks Paul! The reason was because they had their paychecks voided/reversed after the funds were already deposited into their 401(k) accounts. 

The best approach when too much is deposited for a payroll is to leave the excess in the trust and use it as a credit against the next payroll.  The company is made whole as of the next payroll date when the credit is applied.  Administratively, this is the cleanest approach, but be sure to document, document, document everything.

What was the reason for the voiding/reversal of the paychecks?  Sometimes there are paycheck reversals because payroll was processed incorrectly such as when hours worked were wrong.  This could be appropriate.  Sometimes there are paycheck reversals because payroll is trying to fix a plan issue such as when a participant made a valid deferral election and then after receiving a paycheck, changed their mind, decided not to defer, and want their money back.  This is inappropriate.