401(k) Rescue, the Ekon Benefits 401(k) Fix-It Series, describes the most common 401(k) mistakes as determined by the IRS. We provide explanations of common mistakes, suggested prevention techniques and recommendations on correction methods.

Common Mistake #4: Employer Contributions Were Not Made Accurately or to All Appropriate Employees

There are several issues that may result in failing to make employer contributions to eligible employees, as outlined in the Plan Document. These issues include, but are not limited to:

• Failure to Accurately Count Hours or Identify Plan Entry Dates: Ensuring employees are properly tracked for eligibility.
• Failure to Follow Plan Document Terms: Not adhering to the specific terms regarding contributions and eligibility.
• Using Incorrect Definition of Compensation: Misunderstanding or misapplying compensation definitions to calculate contributions.
• Incorrect Timing of Matching Contributions: Missing or late matching contributions.

How to Avoid This Mistake

• Review the Plan Document Thoroughly: Pay close attention to definitions of compensation and the timing of contributions.
• Follow Plan Provisions Carefully: Ensure all procedures outlined in the Plan Document are followed.

What to Do If a Mistake Occurs

If an error in employer contributions is discovered, correct it based on the Plan’s provisions and any applicable regulations at the time the mistake was made. Many operational errors can be corrected through the IRS Self-Correction Program (SCP), which was significantly expanded under Rev. Proc. 2021-30 to include more types of significant failures without IRS approval, so long as the plan has established practices in place.

• Significant Errors: If the employer contribution error is considered significant, it may still be corrected under the Self-Correction Program (SCP), as long as the correction is made within three years of the plan year in which the error occurred and the plan has established operational compliance practices in place (as described in Rev. Proc. 2021-30).
• After the Three-Year Window: If not corrected within this timeframe, the error must be corrected under the Voluntary Correction Program (VCP), which requires IRS approval and a formal submission.

For a complete listing of the most common 401(k) mistakes, please visit the IRS 401(k) Plan Fix-It Guide. For assistance in correcting a plan error, please contact Ekon Benefits at (314)367.6555 or info@ekonbenefits.com.