Employers who have become accustomed to correcting elective deferral failures under their 401(k) plan by making a 50% corrective contribution to the accounts of affected employees may want to become familiar with new guidance issued by the Internal Revenue Service. Revenue Procedure 2015-28 modifies the existing rules with respect to 401(k) plans with automatic contribution features and 401(k) plans that have elective deferral failures of a limited duration.
Since 2006, the standard correction for elective deferral failures has involved the employer making a corrective contribution equal to 50% of the missed deferral. These rules applied to both the improper exclusion of otherwise eligible employees, as well as failures to implement employee elections.
