Both Employers and Participants Benefit from New IRS Guidance on Correcting Inadvertent Benefit Overpayments
Retirement plan administration mistakes require difficult conversations with participants, especially when the mistake involves an overpayment. Changes in the law, specifically, SECURE 2.0 and IRS Notice 2024-77, give plan fiduciaries additional flexibility when addressing overpayments. Overpayment of Matching Contributions Consider the case of a 401(k) plan with an employer matching contribution on the first 6% of compensation that a participant contributes to the plan. The plan sponsor adds a Roth after-tax deferral feature to the plan and confirms that the match formula applies to Roth deferrals. Unknown to the plan sponsor, the payroll program applies the 6% compensation limit separately to traditional pre-tax deferrals and to Roth deferrals, resulting in a maximum match on 12% of compensation if the participant elected a 6% pre-tax deferral and a 6% Roth deferral. In the course of correcting the error, the plan administrator determines that some affected participants te...