401K Match Issues, created by Raeann Hofkin, CPP
September 13, 2012
401k Match Issues
Issue:
1. The 401k memo code (M) calculation does not normally occur unless the employee has a 401k contribution deducted from their paycheck. However, there are times when a match will calculate when a deduction does not occur due to a common problem called “add back”.
2. The 401k match does not occur on manual checks and would need to be calculated manually or via checkmate.
Definition:
Add Back - occurs when gross minus all taxes/deductions creates anet that is less than $0. At that point, the ADP system starts adding back deductions to get the net to zero. However, the system does not go back and recalculate memos. This causes the net to be $0 and the 401k deduction was added back (not deducted) but the match was already calculated but not earned.
Memo Code – Allow the numeric data entry separate from an employee’s hours and earnings entries.
Example:
In a live check the normal order of operation would be to calculate the earnings, deduct the taxes, deduct other benefits & garnishments, then perform special calculations such as 401k match based on 401k deduction.
Employee John Doe completed his W4 to request an additional $75 to be withheld for his Federal taxes, and has a 5% 401k contribution. John is receiving a second check for $63. When the system processes this request, you can already see that the net will be less than zero ($75 in additional taxes to be withheld when the earnings are only $63).
The system will follow the normal order of operations and deduct the taxes (plus $75 additional Federal), then deduct the benefits (including the 401k contribution), then perform the calculation to figure the 401k match on the 5% deduction.
Then the add back process will add back deductions and taxes in a certain order (see pages 4-6 for add back sequential order) until the check nets to zero.
Common Reasons for the Add Back Process:
1. Request from employees to have additional taxes withheld.
2. Not enough earnings to cover taxes and deductions.
- Electing 100% 401k, ESPP, or other percent deductions such as garnishments, which do not leave enough money to calculate mandatory taxes or additional taxes.
4. Invalid pay data entry resulting in earnings being less than mandatory taxes and/or deductions.
Audit:
1. Review the Unused Deduction Report using Payroll Quickview prior to approving the payroll.
a. Tip: review the last page with totals. Look for 401k and any other benefits and direct deposits that should be deducted. Identify which employees make up the totals by scanning the report and reviewing the reason codes.
i. Direct deposit reason code “Account Prenoted” – Okay
1. Direct deposits not deducted and no reason code would need to be reviewed.
ii. Medical benefits – could be okay if employee is on LOA
iii. 401k – This would be an issue and this employee should be reviewed
iv. 401k Loan – if reason code is “Goal Deduction is reached” – Okay
1. If not, review why the loan was not deducted.
b. Tip: You could just scan down the report reason code column and look for blanks and review employees pay. Make necessary corrections.
Unused Deduction ReportDeduction / Reason Code / Review / Notes
Direct Deposit / Account Prenoted / NO
Direct Deposit / None / YES
401k Deduction / None / YES
401k Loan / Goal Deduction Reached / NO
401k Loan / None / YES
Medical Benefits / None / YES / Employee could be on LOA
Correction:
· If issue was discovered prior to processing the payroll by auditing the Payroll Quickview, make necessary corrections and request another Payroll Quickview.
· If the issue is discovered soon after payroll has been processed, it is preferred that the check be voided and enter it correctly in the next payroll. In addition, contact the 401(k) benefits manager in order to do an adjustment before the file is sent to Vanguard.
· If the issue is discovered months after the payroll has been processed, after notify the 401(k) benefits manager that an adjustment to the match memo code M will appear on the next payroll. The adjustment needs to be made on the Memos panel (Autolink Payroll Processing, Entering Deduction Detail, Entering Memos). Enter memo code “M” and the appropriate adjustment.
o Negative number to subtract amount
o Positive number will add more to the match
Add Back Sequence for all Pay Groups:
1. Tax Gridded Deductions that cause negative taxables (generally caused by gridding an already exempt deduction).
2. Partial Bank Deposits
§ If the company is not NOS Expanded Fields, the addback sequence is A-Z, followed by 1-99.
§ If the company is NOS Expanded Fields, codes are treated as 3-positions right justified with blanks sorting before alpha and alpha sorting before numeric. For example, addback sequence:A, B, 2, 4, AA, BB, 22, AAA, 1AA, 1Z1, 11A, 222.
§ Banking deductions that are also Special Comp deductions are added back as Special Comp items, not banking deductions.
§ If an Addback Priority number was entered on the 7E card for the deposit code. the deposit code amount is added back after all deposit codes without an addback priority. If more than one deposit code for the employee has an addback priority, addback within these codes is in priority number order with priority number 999 added back first and 001 added back last.
3. Regular Voluntary Deductions
§ If the company is not NOS Expanded Fields, the addback sequence is A-Z, followed by 1-99.
§ If the company is NOS Expanded Fields, all deduction codes are treated as 3-position right justified with blanks sorting before alpha and alpha sorting before numeric. For example, addback sequence:A, B, 2, 4, AA, BB, 22, AAA, 1AA, 1Z1, 11A, 222.
Note: If a client is not set up as either WGPS or CSTLG, Deduction code G is treated as a Garnishment in addback logic, even if not used for Garnishment.
4. CCI Priority Deductions
§ Deduction is assigned a priority in the Net Priority field on the DED screen.
§ Non Expanded Fields - 1 to 10 (1=added back last, 10=added back first)
§ Expanded Fields - 001-999 (001 = added back last, 999 = added back first)
5. Taxable Pension
6. Roth 401(k) or Roth 403(b) Deduction
7. Deferred Compensation
§ If the company is not NOS Expanded Fields, the addback sequence is A-Z, followed by 1-99.
§ If the company is NOS Expanded Fields, all deduction codes are treated as 3-position right justified with blanks sorting before alpha and alpha sorting before numeric. For example, addback sequence: A, B, 2, 4, AA, BB, 22, AAA, 1AA, 1Z1, 11A, 222.
§ If the company is a 401(k) Recordkeeping company, there is a possibility of having a mix of 401(k) and Roth percentage and flat dollar contributions as well as Standard and Catch-Up Excess (CUE) 401(k) and Roth contributions. For this reason, flat dollar contributions are converted to a percentage of eligible compensation when performing company match calculations, and when performing company match re-calculations during deduction addback. The specific deduction addback priority sequence is Roth CUE, 401(k) CUE, Roth Flat Dollar, Roth Percentage, 401(k) Flat Dollar, and 401(k) Percentage contributions.
8. Cafeteria Plan Benefits Exempt From Federal Taxability (other than Medical Insurance)
9. Cafeteria Plan Medical Insurance Benefits Exempt From Federal Taxability
10. Private Garnishments (must be deduction code G)
11. Private Child Support *
12. Regular Garnishments *
13. Bankruptcy *
14. State Student Loan Garnishments *
15. Federal Student Loan Garnishments *
16. State Tax Levy *
17. Federal Tax Levy/Mandatory Child Support *
18. Posted SUI, Cash Portion of Posted Medicare, Cash Portion of Posted SS
19. Uncollected GTL Portion of Medicare/Social Security
20. Tip Portion of Local 5 (non-guaranteed; see Notes below)
21. Tip portion of Local 4 (non-guaranteed; see Notes below)
22. TIP Portion of Lived-in State Tax
23. TIP Portion of Worked-in State Tax
24. TIP Portion of Federal Tax
25. TIP Portion of Medicare
26. TIP Portion of Social Security
27. TIP Portion of Ohio School District Tax
28. TIP Portion of Lived-in Local Tax
29. TIP Portion of Worked-in Local Tax
30. TIP Portion of SUI/SDI
31. Local 5 (non-guaranteed)
32. Local 4 (non-guaranteed)
33. Lived-in State Tax
34. Worked-in State Tax
35. Federal Tax
36. Local 5 (guaranteed)
37. Local 4 (guaranteed)
38. Ohio School District Tax
39. Lived-in Local Tax
40. Worked-in Local Tax
41. Voluntary Plan Disability (VPDI) for NY and HI only when Alternate Addback Sequence = blank (CA and NJ VPDI are treated as voluntary deductions.)
Voluntary Plan Disability for NY, HI, CA, and NJ when Alternate Addback Sequence = 1.
42. Oregon Workers Benefit Fund
43. SUI/SDI
44. Medicare
45. Social Security
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