deferral errors and QNEC

[Theseus]

I've been trying to find an answer to my situation regarding 401(k) deferral errors and methods of correction. The IRS website has some good information and I've learned about QNEC and such, but not entirely understanding them as I'm no tax lawyer.

Situation is this:

• Megacorp 401(k) 100% match on first 5% pay elective deferral
• First two pay statements I had elected a 21% of pay deferral rate
• Beginning third pay statement I had elected 5% of pay deferral rate, in order to build cash reserves for ER this year while fully utilizing the available 100% match
• Elective deferrals made as I specified, until eighth pay statement which due to an error reverted to 21%
• Subsequent pay statements reverted to correct 5% deferral - until...
• Received a letter from Megacorp last week saying they were going to refund the eighth statement's error.
• Before I could say "what about my match" my last pay statement had a negative elective deferral amount.
• The end result was I had no elective deferral to match on that statement, basically denying me a benefit the plan says I am entitled to, and that I had given instruction to that end

The most recent Plan Summary I can locate from two years ago (a company name change ago, with another one coming soon) does call for true-up contributions which I understand could fix that, but as I understand it my intending to retire this year (which Megacorp is aware of) seems to make that corrective measure unavailable.

The question I have is - was the negative deferral the correct way to correct the first error? Would the effective denial of matching contribution require a QNEC to correct?

Hardly seem right that two wrongs could make a right, I've been conversing with the Megacorp 401(k) folks, outsourced 3rd party I'm sure, without much success so far. They point the finger towards the payroll silo (yup, outsourced 3rd party) and say they are the ones who messed it up.

 

[pb4uski]

I'm missing something. From what you wrote it sounds like the only error was withholding 21% on the eighth pay statement rather than the 5% you had requested. It sounds like the refund of the eighth statement's "error" is just correcting the 21% to 5% and just putting you back into the same position that you would have been if Mega had done everything consistent with your instructions to begin with? If so, what are you complaining about?

Or are they adjusting the 21% to 0% on the eighth statement? and reversing the match as well?

 

[Theseus]

Or are they adjusting the 21% to 0% on the eighth statement? and reversing the match as well?

Statements are bi-weekly, 1st was 1/10/14
Statement 1 & 2 elective deferral at 21% (as I had directed)
Statement 3-7 elective deferral at 5% (as I had directed, to fully utilize match)
Statement 8 elective deferral 21% (my direction remained 5%) Error #1
Statement 9-11 elective deferral again at 5% (as I had directed)
Statement 12 elective deferral -11% (my direction remained 5%) Error #2

I had advised our local payroll about the statement #8 error as soon as it occurred, I wasn't really all that worried about it just alerting them to the discrepancy.

What roasts me is their compounding of errors by "refunding" of my money and having a negative 11% deferral on the most recent pay statement. I don't think that is how the IRS instructs Plan Administrators to do that. The method used makes the deferral amounts come out right, but effectively denied me the matching contribution for the most recent statement. Retiring in a few weeks would appear to take the option of a true-up correction off the table too.