Payroll company stopped withholding deferrals for an HCE who hit the compensation limit before he got to the 402g limit. What is the correction process? do you have to go back to prior years to fix and if so how far back?
thanks
Full Version: Payroll company stopped HCE deferrals at comp limit
You have to correct if the operational practice varies from what is specified in the written plan document.
It could be that the plan document is vague enough to permit this. If the plan states that an eligible employee may elect to contribute a percentage of "Compensation" and "Compensation" is defined to include the 401(a)(17) limit, then perhaps the party responsible for interpreting the plan document could conclude that it is interpreted to mean the first dollars earned for the plan year and that deferrals should stop once the 401(a)(17) limit is reached.
If there is no way to interpret the plan document to be consistent, then under the Self-Correctino Program (assuming you meet the conditions for it), you must completely correct the operational failure. There is no limit on how many years one must correct.
It could be that the plan document is vague enough to permit this. If the plan states that an eligible employee may elect to contribute a percentage of "Compensation" and "Compensation" is defined to include the 401(a)(17) limit, then perhaps the party responsible for interpreting the plan document could conclude that it is interpreted to mean the first dollars earned for the plan year and that deferrals should stop once the 401(a)(17) limit is reached.
If there is no way to interpret the plan document to be consistent, then under the Self-Correctino Program (assuming you meet the conditions for it), you must completely correct the operational failure. There is no limit on how many years one must correct.
QUOTE (MWeddell @ Nov 17 2009, 06:44 PM) 
You have to correct if the operational practice varies from what is specified in the written plan document.
It could be that the plan document is vague enough to permit this. If the plan states that an eligible employee may elect to contribute a percentage of "Compensation" and "Compensation" is defined to include the 401(a)(17) limit, then perhaps the party responsible for interpreting the plan document could conclude that it is interpreted to mean the first dollars earned for the plan year and that deferrals should stop once the 401(a)(17) limit is reached.
If there is no way to interpret the plan document to be consistent, then under the Self-Correctino Program (assuming you meet the conditions for it), you must completely correct the operational failure. There is no limit on how many years one must correct.
It could be that the plan document is vague enough to permit this. If the plan states that an eligible employee may elect to contribute a percentage of "Compensation" and "Compensation" is defined to include the 401(a)(17) limit, then perhaps the party responsible for interpreting the plan document could conclude that it is interpreted to mean the first dollars earned for the plan year and that deferrals should stop once the 401(a)(17) limit is reached.
If there is no way to interpret the plan document to be consistent, then under the Self-Correctino Program (assuming you meet the conditions for it), you must completely correct the operational failure. There is no limit on how many years one must correct.
So there is no lattitude here since it only impacted one HCE??
So all HCEs who hit the comp limit were cut off regardless of the 402(g) limit? Sounds like an adminstrative practice. Unless the plan is very clear that you shouldn't cut off, then I'd be reluctant to open the can of worms of a correction. If you want to change it, I'd change the practice prospectively into the future and not backwards.
If you are talking about 2009, you still have time to fix it.
QUOTE (dstran @ Nov 17 2009, 01:36 PM)
So there is no lattitude here since it only impacted one HCE??
I'd write the same comment regardless of the number of highly compensated employees. Try to interpret the document so that operational practice is consistent with the document. However, if a correction is needed, the Self Correction Program requires full correction.
The fact that there is only 1 HCE helps to identify that the operational failure, if there is one at all, is insignificant and therefore eligible for self correction. One still must fully correct any operational failures.
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