Correcting Deferral Mistakes

Deferral Mistakes Deferral mistakes happen and although the DOL has levied a lot of fines and has picked up their enforcement activity, there are methods to voluntarily correct errors if employers sponsoring an ERISA plan take timely action. One of the most common mistakes is not deferring the proper amount on behalf of employees or not changing the percentage when directed.

A Wilmington based CPA and plan auditor outlines a series of actions that plan sponsors can take to avoid fines and other liability under the Employee Plan Compliance Resolution System (EPCRS) There are two options which include:

  • Qualified Non-Elective Contribution (QNEC) – Plan sponsors contribute 50% of missed deferrals and 100% of the match plus lost earnings. No notice to the employee is required.
  • No QNEC required if:
    • Corrections are made on the 1st payroll after the three-month grace period that begins when the failure occurred; or
    • The 1st payroll on or after the last day of the month following the month of notification by the employee

There’s a modified QNEC option if the deferrals begin after the three-month grace period but within two years after the plan year when the errors occurred which include:

  • 25% of missed deferrals
  • 100% of match
  • Lost earnings

Notification is required.

Since the amounts due under the QNEC are usually minimal, the CPA firms suggests that the QNEC option is right for most plans.

Following all the rules under ERISA can be daunting but there are relatively easy ways to correct errors, such as deferral mistakes, that are clearly not intended to benefit the company or do not cause substantial harm. Working with experienced and knowledgeable TPAs, CPAs and attorneys, as well as integrated payroll and record keeping systems, should result in less errors and, when they occur, are quickly and simply corrected.

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