It can happen to anyone - accidentally pushing the wrong button twice can cause excessive and unintended contributions to your plan. Unfortunately, while clerical mistakes can occur easily, correcting them are not always as simple. ERISA, the primary law governing workplace retirement plans, prohibits all assets, once deposited to the plan, from being used for anything other than to benefit participants. This means they can not be refunded to the employer, even for an accidental deposit. However, the IRS has carved out a limited set of exceptions called “mistakes of fact” from that rule and permits refunds to be made under certain circumstances.
Rather than provide definitive guidance about what is or is not a “mistake of fact,” the IRS gives a few examples of instances where a refund is permissible, such as:
- A misplaced decimal point, like an extra zero in an employer match;
- An incorrectly written check;
- An arithmetic or calculation error;
- A contribution based on a good faith mistaken belief about the number of participants in a plan; or
- Including the same participant multiple times in the same payroll file or if a single payroll file was submitted twice.
The IRS also provides examples of errors that are not “mistakes of fact,” like where an employer accidentally contributes an amount that causes the plan to fail annual testing or an amount that results in a participant having exceeded the IRS maximum annual contribution. The IRS has also rejected refunds where a contribution is made for an ineligible participant.
Only the Plan Sponsor can determine when a permissible “mistake of fact” has occurred. If you believe that an accidental contribution entitles you to a refund, promptly submit a Mistake of Fact Refund Request Form. We will process your refund on the same business day if we receive your completed form before 4:00 pm EST; otherwise, it will be submitted for processing the next business day. Vestwell will not be responsible for any losses, such as due to market fluctuations, between the time you submit the Mistake of Fact Refund Request Form and when it is fully processed. If the error satisfies the “mistake of fact” rule, you will generally be entitled to a return of the inadvertent payment (there are some exceptions to that rule), but not to earnings on it. Vestwell may also charge a fee for the correction in accordance with the fee agreement in your Plan Service Agreement. Please keep in mind that returning funds to your corporate account can jeopardize the plan’s tax-qualified status, which can have potentially significant tax consequences for your participants and your business.
If you do not believe there has been a “mistake of fact,” or if you prefer to be conservative, then we will treat the accidental contribution as an excess allocation and deposit it to your plan’s forfeiture account. We would not be legally permitted to refund it to you, but we can use that account to pay for other plan expenses or possibly towards future employer contributions. Additionally, if there are repeated mistaken contributions, you may want to consider amending your plan to make it easier for you to administer.
We can assist you with any clerical errors or similar issues. Still, you must alert your Vestwell Client Success Team immediately if you experience any of these issues or if you think you accidentally submitted files in error.
If you have any questions please reach out to clientsuccess@vestwell.com