Build the correction file when a 401(k) election was missed

Distinguish an eligible employee who was never offered participation from an employee whose valid election was not implemented. Retrieve the plan's eligibility provisions, entry date, enrollment communications and election record. The correction analysis depends on the actual failure, not just the absence of a payroll deduction.

The IRS fix-it guidance emphasizes accurate employee data and evidence of when eligible employees were offered a deferral opportunity. Include hire dates, service information and relevant employment changes. An employee's part-time label alone does not establish exclusion from the plan.

Preserve the employee's original submission and the date the employer learned of the problem. If automatic enrollment or escalation applies, provide those plan terms too. Avoid asking the employee to sign a backdated election to make the payroll history look complete. Retain failed transmission notices as well, because they can establish where an otherwise valid election stopped moving through the process.

List each pay date during the suspected failure, eligible compensation, the election that should have applied and the deduction actually taken. Identify bonuses and off-cycle payments. Use the administrator-approved compensation definition so the impact file does not repeat a separate mapping error.

For a hypothetical valid 4% election on $2,500 of eligible compensation, the intended deferral for that payment is $100. This is an input to the correction review, not a statement that the employer must collect $100 from the employee later or contribute exactly $100 as the remedy.

Check whether money was withheld but failed to reach the plan. That is a different failure from a missed deduction and may need a late-deposit review. Keep the two cases separate even when they affected the same employee and were discovered during the same reconciliation.

The applicable correction may involve an employer contribution for the missed opportunity, missed matching contributions, earnings and participant notices. IRS guidance describes different methods and conditions. Ask the qualified plan adviser which current rules apply, including any effect of how promptly the failure is corrected.

Do not apply a remembered percentage from an old example to every case. Automatic enrollment, the duration of the failure, employee notification and other facts can affect available methods. Retain the adviser's instructions with the discovery chronology and the specific plan year involved.

Start correct prospective deductions through the approved process while the historical remedy is being assessed. Verify the employee's current election and the next applicable payroll. Fixing future deductions does not eliminate the need to resolve the earlier missed opportunity.

Compare the recordkeeper's corrective contribution allocation with the approved employee-level schedule. Retain principal and earnings components separately. A company bank withdrawal proves funding activity, while participant account records establish where the correction was allocated.

Confirm that any required participant notice uses the approved content and is delivered through the appropriate process. Explain the company's factual correction without predicting an employee's investment result or personal tax outcome. Keep sensitive balances out of general payroll status reports.

Close the operational failure by repairing the missed handoff, such as an election feed that excluded new hires or a payroll queue without an owner. Check the next employee entering the plan through the complete process. Preserve the final correction file so future plan testing can use the revised records accurately.