What To Do if Employee 401(K) Contributions Were Missed or Forgotten

As an employer, you are 100% responsible for ensuring that your employees’ 401k contributions are transferred to the plan trust. You must complete these transactions in a specified amount of time or risk a failure that could result in plan disqualification. The other issue that might arise is that you will need to do an unauthorized transaction, which is a different set of issues. Here’s some information about how you can fix the problem. 

Correcting Operational Issues In-House

The answer is yes if you wonder, "Can I make a late contribution to my 401k?" You can make late contributions, but you’ll need to do something to fix the problem. The guidelines specify when the contributions need to be distributed to the trust, and failure to follow those guidelines is a foul. Fortunately, there are a few corrective actions you can take.

You can always take steps to correct operational errors once you realize they’re happening. For example, you might discover that someone is making the deposits 15 days after payroll processing instead of seven days, as the rules suggest. If you participate in a self-correction program, there will be no IRS involvement or special user fees added.

The company can simply make the correct contributions by December 31 of the year. However, the organization will not be eligible for a self-correction plan if the contributions aren’t made by that date. The only way to solve the issue at that point is to undergo an audit closing agreement program.  

Getting the IRS Involved

When the IRS gets involved, they will outline a corrective action to get your business back on track with the contributions. You’ll have to abide by the guidelines or instructions they give you if you want to get back into their good graces and not get disqualified from the plan altogether. 

Avoiding Future Mistakes

These are some ways to avoid making future mistakes with the employee’s contributions. 

Communicate With Payroll

The problem might primarily come from a failure to communicate with payroll effectively. Payroll experts must know the specifics of the contribution guidelines, and they must implement strategies and practices to ensure they follow those guidelines.

By staying in touch with them, you will ensure they follow the correct protocol and submit the funds promptly. You’ll also avoid embarrassing conversations with the IRS and the need for an audit closing agreement program in the near future. 

Increase Monitoring and Auditing Efforts

If you want to reduce the occurrence of incidents of contribution transfer failures, you should increase your monitoring efforts. Perhaps, you can start auditing these processes more frequently until you establish a new sense of trust that they will be done correctly. 

Now you know the correct answer to your question, "How do I fix forgotten or missed employee 401(k) contributions?" You also know some ways to prevent such an erroneous incident from happening in the first place. Follow those guidelines and stay on top of the internal auditing process, and you will be fine.