From the Hotline: Correcting 401(k) Contribution Errors

Question: How should an employer correct an employee’s 401(k) contribution that is mistakenly deleted from a payroll process?

Answer: Depending on the timing between the error and the correction, the employer may be able to make the correction within the next pay period. If the error only spans a single calendar/tax year, then it should be relatively easy to correct. The employer will need to review the error with the employee and contact the plan administrator. The employer will want to make arrangements with the employee regarding payroll contributions and deposits into the account. Because the employee missed out on certain opportunities, the employer will need to pay restitution on the total amount that should have been originally deducted from pay. If the plan administrator is unable to provide assistance and detailed guidance, employers should work with a qualified tax professional specializing in retirement planning or another subject matter expert to correct the mistake and mitigate the risk of exposure to further financial liability.