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I received an email from my previous employer a few weeks ago. I’ll paraphrase: “Ooops. When we processed your last paycheck in June, we failed to deduct your elected contributions to your 403B and 457 accounts.”
Now, I knew this because my final paycheck was quite a bit larger than I’d expected, but I thought I’d just misunderstood how the dates worked. (I separated from my employer on June 28, retired on July 1, and my final paycheck, in arrears for June, was processed somewhere between June 27-30.) Oh, well, I’ll just pay a bit more in taxes because of this. Or so I thought.
Nope. Apparently if the employer makes that mistake, they have to compensate the employee: “In accordance with Internal Revenue Service (IRS) guidelines, [my employer] will correct this by making a Qualified Nonelective Contribution (QNEC) for the plan(s) listed below…” It turned out to be 50% of what I would have contributed that month to the two accounts. To be clear, it was my employer’s money, not mine. They’re just required by this IRS guideline to give it me.
With the two contributions put together, it came out to just under $3000 of free money! It landed in my Fidelity accounts a couple of days ago. Now, as I’ve shared here before, I’d already rolled those accounts over to my Schwab IRA, which was quite an involved process. For this extra little bonus money, I decided to ask Fidelity to just withhold federal and state taxes and withdraw the money and direct-deposit it to my checking account. That turned out to just take a couple of minutes and a few clicks. It will take another day or two, and the take-home amount is just over $2200.
Again, this is totally “found” money, so I plan to do something fun with it. I’m not sure how my employer could have made this mistake; isn’t this all automated? I forwarded the email to my husband for his information, and his comment was “They sure make a lot of mistakes, don’t they?” (I’d previously written about how they had royally screwed up my retirement application.)
Oh, well!
Congratulations! It leaves you feeling a little better about all your time and trouble despite your meticulous planning. They need someone like you handling their retirement office!
Sounds like you earned it! How about some business class plane tickets?
That money would buy a nice puppy and some training!
Great topic.
The IRS has a webpage titled 401(k) plan fix-it guide – Eligible employees weren’t given the opportunity to make an elective deferral election (excluding eligible employees) which gives additional detail about the type of mistake your employer made and how it needs to be fixed.
Employer’s take such corrections deadly seriously as the qualification of the plan can be impacted for such failures.
Yes, at my firm we checked, and double checked this and ran the contributions past our outside accountant every year. We prepared for spontaneous audits, too. Illinois had been reaching into company’s pockets for years looking for errors, etc. which could benefit the state. Any tax related refunds were delayed 120 days or so. My business left a few years ago.
Well, well, isn’t that a sweet little surprise windfall, lucky you. Enjoy the fun money!
I got an actual paper communication from the UK tax authorities letting me know I’d somehow overpaid my personal tax during the last financial year. Unfortunately, they informed me they were holding on to the overpayment and will apply the balance to next year’s tax payment. Unsatisfactory delayed gratification for me, lol.
Honestly, with the amount of stress and anxiety they caused me with their incompetence during my retirement process, I think a surprise windfall at their expense is appropriate! 😂