Correcting one-off missed 401k contribution

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gfmels
Posts: 21
Joined: Mon Dec 14, 2015 1:00 pm

Correcting one-off missed 401k contribution

Post by gfmels » Wed Dec 06, 2017 5:49 pm

My employer forgot to withhold 401k deferrals/contributions from one of our paychecks. They are "working towards a solution" and were unable to answer my question at this time.
The initial question was whether there is any scenario where they will undo the direct deposit made to my checking account to send that money into the plan? Do I need to leave this money in my checking account or can I move it without worrying about them draining the account later?

Is it correct that a reversal of a direct deposit can not be made after 5 business days?

Since I was forced to research this, I have come across more questions. It seems like the procedure to correct this mistake is well defined and they don't have many options. This is my situation:
  • Employees are not auto-enrolled in the plan
  • There is no matching
  • I am not a highly compensated employee
  • The plan does have an option for automatic yearly increases that I am not using because...
  • I've selected the highest contribution percentage, 75% to the after-tax account. The actual contribution for this paycheck would have been ~65% after taxes/pension/union dues/healthcare with nothing left over to deposit into my bank account
  • This happened about 10 days ago
  • The next paycheck was processed correctly
If I'm reading things correctly, the money will stay in my bank account and they will be required to make a QNEC of 40% of the amount that should have been contributed, adjusted for earnings. Does this sound right?
For my coworkers with pre-tax or roth deferrals, would they end up with a 50% QNEC or would timely action make this fall under the recently added 2015 safe harbors for making corrections? I'm having a hard time reading through those rules.
https://www.irs.gov/irb/2016-42_IRB#RP-2016-51 wrote:(C) After-Tax Employee Contribution Failures. (1) The appropriate corrective contribution for the failure to allow employees to elect and make after-tax employee contributions for a portion of the plan year ------------snip---------------

(2) The appropriate corrective contribution for the plan’s failure to implement an employee’s election with respect to after-tax employee contributions for a portion of the plan year is equal to the missed after-tax employee contributions opportunity, which is an amount equal to 40% of the employee’s missed after-tax employee contributions. Corrective contributions are adjusted for Earnings. The missed after-tax employee contribution is determined by multiplying the employee’s elected after-tax employee contribution percentage by the employee’s plan compensation for the portion of the year during which the employee was improperly excluded. If the employee elected a flat dollar amount that can be attributed to the period of exclusion, then the flat dollar amount for the period of exclusion may be used for this purpose. If the employee elected a flat dollar amount to be contributed for the entire plan year, then that dollar amount is multiplied by a fraction. The fraction is equal to the number of months, including partial months where applicable, during which the eligible employee was excluded from making after-tax employee contributions divided by 12. The missed after-tax employee contribution is reduced to the extent that (i) the sum of that contribution and the actual total after-tax employee contributions made by the employee for the plan year would exceed (ii) the sum of the maximum after-tax employee contributions permitted under the plan for the employee for the plan year. The requirements relating to the passage of the ACP test before this correction method can be used, as described in Appendix A, section .05(5)(d), still apply.

Thanks.

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