Payroll overpayment

I've gotten conflicting answers on this - but if someone is overpaid from a payroll perspective, and it causes an overpayment on a deferral and a match - 

Does the overpayment for both have to be put into the forfeiture/suspense account? Or can they be refunded back to the company as a mistake of fact?

It depends on the reason for the overpayment. If it's just plain a mistake it can be refunded. But the penalty for being wrong is severe. So it's worthwhile to be sure.

Like a situation where someone was paid an extra month and shouldn't have been (i.e. if they were on leave and should have stopped being paid; or were really terminated and shouldn't have been paid; or were overpaid based on incorrect hours data for hourly employees). I'm thinking those count as "mistakes".

2 hours ago, reader said:

Like a situation where someone was paid an extra month and shouldn't have been (i.e. if they were on leave and should have stopped being paid; or were really terminated and shouldn't have been paid; or were overpaid based on incorrect hours data for hourly employees). I'm thinking those count as "mistakes".

I'm thinking the same.

Not that you needed another affirmative opinion to go with Mike Preston, but my thinking would be along the same lines. However, if it is even slightly questionable I am still old-school - I have our clients send a request to their recordkeeper to place the overpayment in suspense and then use the suspense towards their next contribution submission.

40 minutes ago, Catch22PGM said:

I have our clients send a request to their recordkeeper to place the overpayment in suspense and then use the suspense towards their next contribution submission.

I do not think this applies to Deferrals.

From EPCRS: 6.06(2)

Quote

Excess Allocations that are attributable to elective deferrals or after-tax
employee contributions (adjusted for Earnings) must be distributed to the participant.

Because what if there are no employer contribs?  EPCRS explicitly says the suspense account cannot be used to fund deferrals.

Side note:  if and when it's distributed to the participant, what 1099R code do you use?  I'm sure it's exempt from the 10% penalty tax.

2 minutes ago, BG5150 said:

I do not think this applies to Deferrals.

From EPCRS: 6.06(2)

Because what if there are no employer contribs?  EPCRS explicitly says the suspense account cannot be used to fund deferrals.

In this instance reader mentioned match and I was assuming the same where suspense would be used to fund match - I should have been more explicit.

I wouldn't reduce the deferral excess allocation, but refund it.

I'm not a big fan of mistake of fact processing.  Who is making sure the participant is being "made whole" outside the plan?  That the deferrals will be paid to the EE, but without doubling up on the reduction already taken from the deferrals?

If the mistaken deposit wasn't really deferrals, then forfeiting it out from the wrong account shouldn't suddenly make it deferral money you couldn't later use, just because it had a bad label on it.