Comments on: 401(k): Solutions to common hassles

By: Alison Farrin

Alison Farrin — Thu, 02 Apr 2009 21:39:46 +0000

If your company pays your vacation pay out as W-2 compensation (don’t see how it can do it any other way) it MAY. Check your plan document or Summary Plan Description for 3 things.
1. Definition of Compensation – compensation may be defined to exxlude some items, vacation pay coule be one of those.
2. Check to see if the plan allows for a separate deferral election for bonuses. If it does, the employee can elect to have 0% to the plans max deferral percentage taken one time from the bonus if the employee executes a special election form before the comp is paid.
3. If there is no special election and their is no restriction on the definition of compensation, then the normally elected deferral percentage should be withheld and the payroll is in error if it is not.

RE Item number 3 in the corrections list – Rev Proc 2008-50 says:

(7) Correction for exclusion of employees for elective deferrals or after-tax
employee contributions. If a Qualified Plan has an Operational Failure that consists of
excluding an employee that should have been eligible to make an elective deferral under
a cash or deferred arrangement or an after-tax employee contribution, the employer
should contribute to the plan on behalf of the excluded employee an amount that makes
up for the value of the lost opportunity to the employee to have a portion of his or her
compensation contributed to the plan accumulated with earnings tax free in the future.
This correction principle applies solely to this limited circumstance. ……..Appendix A .05 and Appendix B 2.02 cannot, for example, be used to correct ADP/ACP
failures.

And the Appendixes show examples.

Not making an elected deferral constitutes excluding an employee who should have been eleigible.

All that said – we routinely adivse employers that have missed “A” deferral to check with the employee and see if it’s ok to double up. The lost opportunity cost on a deferral made 2 weeks late is pennies and hardly worth the time to do the cost calculations. But if your employer does this consistently, they should be reviewing the proceedure by which participants are enrolled.

By: Greg

Greg — Tue, 24 Feb 2009 22:01:21 +0000

our company is requiring that employee cash-out their vacation banks over a certain threshold. Are those earninings 401k eligible?

By: PATRICIA

PATRICIA — Sat, 14 Feb 2009 00:14:42 +0000

shame on each employee who apparently did not check even once on his account balances for a whole year.

By: Tom

Tom — Fri, 13 Feb 2009 22:26:25 +0000

I was allowed to put over $14k in my 401k from a severance package from my old company in late 06 early 07.
In late 08 the administrator of the plan says that severance money is not allowable in a 401k.They had to pull $21k out (due to the market downturn)and send it back to me so I can be taxed on it, also lose the company matching portion and fund dividends.
Should I just sue the whole bunch?

By: Karl Kopp

Karl Kopp — Fri, 13 Feb 2009 15:19:42 +0000

Can you campare and contrast a 401k and 403b?

By: Randi

Randi — Thu, 12 Feb 2009 23:30:21 +0000

Horror story — my 401(k) administrator deducted the contribution from the employees’ checks but did not depoti it in their accounts — and I didn’t catch it. The auditor caught it over a year later.

By: Christina

Christina — Thu, 12 Feb 2009 22:36:29 +0000

Does anyone have documentation for #3? My company just deducts anything that should have been on the next check, making for unhappy employees.

By: Starr

Starr — Thu, 12 Feb 2009 21:26:35 +0000

Hi,
Can a retiree’s annual leave payout be put into this type of account so that they pay the tax when they use the money from the 401?