Topic Archive: missed deferral opportunities

How Do We Correct Missed Deferrals for New Hires?

DWC | 07/31/18

Facts

Our 401(k) plan allows new employees to make contributions on the first day of the quarter after they work for us for a year.  All of our full-time employees have been with us for a long time.  Most of our new hires are for short-term projects, so they almost always terminate employment in less than a year and never become eligible for our 401(k) plan.  Recently, however, we had two new hires that did stay with us for a year and should have become eligible for the plan.  One of them heard about the plan from a co-worker and submitted a deferral election form, but since we are not used to new hires sticking around that long, we overlooked implementing the election.  The other never knew about the plan at all.

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Correcting a Failure to Withhold Deferrals from Eligible Compensation

DWC | 06/28/18

Facts

ABC Company maintains a 401(k) plan that includes the following provisions:

  • It operates on a calendar year.
  • Compensation is defined as W2 wages with pre-tax deferrals added back and no exclusions.
  • Eligible participants can defer up to the IRS limit $18,500 + $6,000 for those age 50 or older (2018 limits, indexed for inflation)
  • The company provides a match equal to 100% of the first 5% deferred by each participant, calculated using compensation and deferrals for the full year.

In addition to regular compensation, ABC pays performance-based bonuses at the end of each calendar quarter.

While compiling the year-end census, it was noted that the overall deferral percentages did not appear quite right for certain employees based on their elections.  On closer review, it was determined that employees who received quarterly bonuses did not have any 401(k) deferrals withheld from those amounts.  With no deferrals withheld, ABC also did not make the corresponding matching contributions.

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