Even experienced HR/benefits pros struggle with the arcane 401(k) reporting and distribution rules.

Here’s how to handle four areas where people often get tripped up:

1. Year-end 401(k) enrollment

Suppose you hired an employee in late December and he enrolled immediately in the 401(k) plan. His first contribution to the plan likely came out of a January paycheck.

So should you count him in your 2008 plan report or wait for 2009?

Answer: The feds say to exclude the employee from 2008, because he had no compensation that year from which he could make a salary deferral.

2. Distribution without consent

Generally speaking, you must contact a former employee before making any 401(k) distribution over $5,000. But there are exceptions:

• distributions less than $5,000 made after age 65 (although best practice is to notify the retiree anyway), and
• situations where you’re unable to get current contact information for the person after several unsuccessful contact attempts.

If the latter is the case, keep in mind that your firm has limited choices for distributing the money. One compliant option: transfer the money to a state unclaimed-property fund.

3. Contributions not withheld

What if an employee signs up for the 401(k) but, due to a clerical error, the money was never deducted from the person’s paycheck? Here’s how to straighten it out:

The IRS requires your firm to make the missing contribution on behalf of the employee, plus any related matching contributions. Your options may be limited.

Finally, you must also make up for any lost earnings on the money the employee intended to invest.
Bottom line: This is a very expensive mistake to fix, but once it’s done, your firm is back in ERISA’s good graces.

4. Small refunds

Suppose Payroll accidentally took out a little too much money (say, an extra $10 per check for three checks) before someone caught the mistake.

Are you required to issue a $30 refund to the employee? Yes. Not doing so violates ERISA.