Topic Archive: Plan Correction

Feeling Defeated in the Battle of Participant Loans? We've Got a Fix for That.

DWC | 05/30/19

While not quite as ominous as a battle with the Night King, dealing with participant loans in retirement plans can be a daunting challenge for plan sponsors.  Because of Congress’ concerns about protecting plan assets from improper use by participants and plan sponsors alike, the loan rules are strict and unforgiving. 

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Are Missed Deferrals and Late Deferral Deposits the Same Thing?

DWC | 05/14/19

Facts

Our company sponsors a 401(k) plan.  One of our newer employees, Jane Smith, met the eligibility requirements and should have joined the plan on January 1st.  Due to an oversight, we forgot to enroll Jane in the plan until she asked about it a couple months later.  We assume that we need to make some sort of correction, and we’ve done some online research to figure out next steps.  We’ve seen references to missed deferral opportunities and late deferral deposits, but to be honest, it’s all a little confusing.

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DWC News Update: The IRS Helps Those Who Help Themselves

DWC | 04/22/19

The IRS did its part to make Friday, April 19th a really good Friday for those who sponsor qualified retirement plans.  After not making many friends when it jacked up the user fees for the Voluntary Correction Program (VCP) a year or so ago, the IRS has responded to industry requests (that DWC representatives helped draft) by now allowing plan sponsors to self-correct a number of more common missteps without the need to submit anything to the IRS at all.

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Forfeiture Account Gathering Dust? We’ve got a fix for that!

DWC | 02/28/19

With all the responsibilities that come with being a plan sponsor, not to mention a business owner, your plan’s forfeiture account probably doesn’t make it anywhere near the top of the priority list.  More than likely, forfeitures are allocated to the account automatically by your plan’s recordkeeper following a participant distribution.  Then, your plan consultant provides you an annual update of the value of the account when delivering your compliance testing, plan reconciliations, and Form 5500 after year-end.  The forfeiture account is just sitting pretty with minimal earnings, readily available for a rainy day.  No problem, right?

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Forgot to (Timely) Execute a Document Restatement? There's a Fix for That!

DWC | 12/20/18

You probably know that establishing a qualified retirement plan requires the formal adoption of a written, legal plan document.  And, if you’ve had a plan in place for any amount of time, you’ve most likely also been required to adopt a handful of mandatory amendments along the way. 

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Delinquent Deposits of Employee Deferrals? There's a Fix for That!

DWC | 09/27/18

While it might not seem like that big of a deal if 401(k) deposits are made a couple days or weeks late, the Department of Labor (DOL) considers those payroll withholdings to be plan money on the deposit deadlines regardless of where the money is physically located.  To the extent those monies are still in the plan sponsor’s control, the delayed deposit is treated as a prohibited loan of plan assets to the plan sponsor, which is a very big deal (not in a good way).  If that wasn’t motivation enough to fix the delinquency, the fact that late deposits must be reported on the Form 5500 each year until fully corrected (which is like waving a red flag in front of a bull, only the bull here is the DOL) certainly should be motivation to fix it.  Pronto!


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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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An Employee Joined the Plan Too Soon:  No Harm, No Foul or Failure In Need of a Fix?

DWC | 07/17/18

Facts

In order to be eligible for our company’s 401(k) plan, employees must have worked for us for at least a year and be a minimum of 21 years old.  They can join the plan on the next January 1st or July 1st following the date they meet those requirements.  Recently, we discovered that we allowed an employee to start contributing to the plan before he met those requirements.  He also received company matching contributions.

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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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How Should We Handle It If We Accidentally Overfund Our 401(k) Match?

DWC | 02/20/18

Facts

Our company sponsors a safe harbor 401(k) plan with a match, and we also make a profit sharing contribution each year. Our payroll company calculates match and profit sharing contributions along the way, and we fund both of those each pay period. This year, when our TPA calculated the total match and profit sharing contributions for the year, we discovered that we funded more than we needed to throughout the year.

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