Missed 401(k) Deferrals: What Employers Need to Know and How to Fix Them

Managing a 401(k) plan involves a lot of moving parts. And sometimes, mistakes happen. One common issue employers face is missed deferrals –when an employee’s elected 401(k) contributions are not withheld from their paycheck as intended. While this error can create compliance concerns, the good news is that there are clear steps for correcting it , and a 401(k) consultant can guide you through the process.

What Are Missed Deferrals?

A missed deferral (or missed contribution) occurs when an employee’s chosen 401(k) contribution is not deducted from their paycheck and deposited into the plan. This mistake can happen for several reasons, including:

• An employee’s enrollment was overlooked
• Payroll system errors
• Incorrect deduction settings during a pay period change or salary adjustment
• Miscommunication during the onboarding process

Regardless of the cause, missed deferrals can affect both the employee’s retirement savings and the employer’s compliance obligations.

Why Correcting Missed Deferrals Matters

Failing to correct missed deferrals can result in:

• Lost retirement savings for employees
• Potential IRS and Department of Labor (DOL) penalties for non-compliance
• Employee dissatisfaction if they discover their contributions weren’t handled properly

How to Correct Missed Deferrals

The IRS provides clear correction methods through its Employee Plans Compliance Resolution System (EPCRS). While the exact steps vary depending on the situation, common corrections may include:

• Making a Qualified Nonelective Contribution (QNEC): This involves depositing employer money into the employee’s account to make up for the missed contributions (plus any lost earnings).
• Restoring any employer match that should have been contributed.
• Notifying affected employees and keeping clear records of the correction.

Correcting missed deferrals can be complex, and the best approach often depends on how quickly the mistake is identified. Working with a 401(k) consultant can ensure you follow the proper steps, minimize penalties, and protect your employees’ retirement savings.

How a 401(k) Consultant Can Help

A knowledgeable 401(k) consultant can:

• Identify the appropriate correction method for your situation
• Guide you through IRS and DOL requirements
• Help you implement stronger processes to prevent future errors.

Mistakes happen, but acting quickly and working with an experienced consultant can help you resolve missed deferrals efficiently and keep your 401(k) plan on track.

For more details on correction methods, visit the IRS website, or better yet, connect with a trusted 401(k) advisor who can walk you through the process, minimize risk, and ensure full compliance.
Contact us today to get the support your plan deserves.