Missed 401k Enrollment and Match

Boomer99

Our company failed to enroll a particpant when eligible for the 401k plan and they also missed the matching contribution which was outlined as a benefit in the employment contract.  The employee is mad and wants to be made whole for the match.  What can we do as an employer to help make this employee happy.

ERISAmaven

What you can do to make the employee happy, what you have to do to reduce the chance of being sued for a fiduciary violation, and what you have to do to protect the plan from being disqualified by the IRS are all the same thing. You have to put the employee in the same financial position that he or she would have been in if he or she had been enrolled and deferrals and matching contributions were made plus earnings that would have accumulated had the contributions been made on time. Your situation is really a very, very late contribution. The sooner it is corrected the better.

Boomer99

It has been over 6 months and the employee wants to be compensated for the match + earnings.  Do we do this through a salary adjustment or wait until they can enroll again in July and go back with the matching contributions?  Not quite sure how to make them whole again.

ERISAmaven

I don't think that there is any set way that this has to be done. The end result should be that the employee should have the same amount of matching conributions, deferrals, and earnings on each that he or she would have had if the mistake had not been made. It's really a tricky arithmitic problem. I would start out by figuring what the employee would have in his or her 401(k) account as of the end of April and then figure out how to get the right amount of money into the account. It may require some temporary salary adjustments. It may be necessary to get an accountant involved.

mpinnick

I'm surprised the company that handles the 401K won't work with you on retro activating the employees account.

Maureen Pinnick

Manager of Employee Resources

Franklin College

chrpr1

This has happened in the past with my company. We calculate what would have been submitted with each paycheck retroactively. Then we send this information to our 401K vendor who calculates what the earnings would have been if the contributions were submitted with each paydate. Then they return the totals and we submit through payroll to include these missed contributions and mail a check for the missed earnings to be deposited into their account. We send through payroll because all of our contributions are submitted through wire transfer and listed on tapes submitted to vendors. So there is a good bit of calcuations but it is in the best interest for the to get these missed contribution into their 401K account.

bstouder

If I remember correctly, you might have to "self-report" the incident to the IRS and indicate how you have corrected the situation so that it doesn't happen again.  Your plan's legal team should be able to help with this.

heather1027

Hello,

 This post is old but I just did the same thing and missed a contribution by one pay period.  It was my understanding that this is a fiduciary violation but I am having trouble finding where the law states this.  Could you provide a link or the reference number so I can read it myself?

 Thanks,

 Heather