Dorsey’s Dental Practice has a 401(k) plan. Dr. Dorsey signed up to defer 10% of his compensation each pay period, half of which is to be pre-tax and half of which is to be Roth. He is currently 46 years old, so the most he can save to the plan this year is $18,000. His anticipated wages for the year are $260,000.
Doris at Dr. Dorsey’s office runs payroll for the practice every other week. One day, late of the year, she runs a report on the year to date 401(k) contributions and notices that Dr. Dorsey has managed to defer $20,000 so far between pre-tax and Roth. Doris knows this is incorrect so she contacts her payroll company. It turns out there is a field in the payroll system that must be turned to yes in order to add the pre-tax and the Roth 401(k) together for purposes of the limit. That field wasn’t turned to yes in Doris’ system.
How did they fix it?
To correct the error, Doris fixed the field in her payroll system. She also instructed her service provider team to return the extra $2,000 that had been deposited to the plan to Dr. Dorsey, adjusted for earnings. There was no need to file anything with the IRS as Doris corrected the error before April 15th of the year following the year in which the error occurred.
What about other mistakes?
After going through the correction for this mistake, Dr. Dorsey became concerned that other errors might be occurring in his plan. He has a small business, so he didn’t want a full outsourced Plan Administrator. However, he did want someone who would oversee payroll, sign his 5500 filings and approve his loans and distributions. He decided these were the areas with the most risk for him. Ultimately, he selected Fiduciary Outsourcing as his outsourced fiduciary solution to meet his needs.