Reconcile the first payroll with plan records. Test automatic enrollment, eligibility, catch-up limits, rejected files and employer oversight.

January 6, 2025 · Financial Forte Staff

Historical article: prepared retrospectively using information available as of January 6, 2025.

The first payroll of a new year tests whether a retirement-plan change works outside the implementation meeting. An employee may receive the right enrollment message but the wrong deduction. A payroll system may recognize a higher contribution limit while the recordkeeper rejects the file. A plan document can be correct while the daily process still misses an eligible person.

Review the first affected payroll and the corresponding plan records together. For 2025, focus on the requirements and features that actually apply to your arrangement, including automatic enrollment, long-term part-time eligibility and age-based catch-ups. Treat the check as a comparison of written rules, employee information and completed transactions.

Confirm the rules that apply to this plan

Certain newly established 401(k) and 403(b) arrangements are subject to the SECURE 2.0 automatic-enrollment requirements beginning in 2025, with statutory exceptions and transition rules. Establishment date, employer size, business age and plan type can matter. Do not decide applicability from the plan's marketing name or current headcount alone.[1]

The long-term part-time rules also need attention. The statutory service window generally changes to two consecutive years with at least 500 hours for the relevant 2025 eligibility rule, subject to age and other conditions. The 401(k) and 403(b) frameworks are not identical, and employee exclusions require careful review.[2]

For an eligible participant attaining ages 60 through 63 in 2025, the higher catch-up in the applicable workplace plans is $11,250 rather than the ordinary $7,500. The basic employee deferral limit is $23,500. The separate higher-wage Roth catch-up requirement remains subject to the administrative transition through 2025.[3]

Have the administrator identify which provisions are mandatory, which require a plan choice and which do not apply. Record the basis and the operating instructions. Ask which questions remain unsettled and who will update the operating instructions when further guidance arrives.

Trace a participant from eligibility to investment

Consider a hypothetical private employer whose plan is subject to automatic enrollment and uses a properly selected 3% initial default. A newly eligible employee receives $2,000 of eligible pay in the first affected payroll and has not made a different valid election. Under these simplified plan assumptions, the intended deferral is $60.

Check whether payroll actually deducted $60, whether the remittance file identifies the employee and source correctly, and whether the plan received and allocated the amount to the correct participant and contribution source. Then confirm the investment treatment follows the employee's election or the plan's applicable default procedure. Each step can be correct or incorrect independently.

Suppose payroll deducted $60 but the recordkeeper rejected the transaction because the participant record was missing. A successful payroll run does not mean the contribution reached the employee's account. The exception needs an owner, a resolution and appropriate review of any correction required.

Employee contributions must be deposited under the applicable timing rules. The often-mentioned outer limit is not permission to hold money when it can reasonably be segregated earlier. A specific safe harbor may apply to qualifying small plans; verify the actual rule for your plan rather than using a generic monthly transfer date.[4]

Also test an employee who opted out or elected a different amount. Automatic enrollment does not authorize ignoring a valid employee choice. A control that checks only whether everyone received a deduction can miss that kind of error.

Check the boundaries that software often misses

Review a sample of employees near the relevant eligibility and age boundaries. For service tracking, compare actual hours and measurement periods with the plan's entry rules. An employee classified internally as “part-time” should not be excluded solely because of that label.

For catch-ups, use the applicable age attained during the year and confirm sufficient eligible compensation. An employee turning 60 and one turning 64 can have different limits. The higher catch-up replaces the ordinary amount for the eligible age group; it is not a third layer to add on top.[3]

Suppose an eligible employee plans $34,750 of annual deferrals over 24 checks but the first check contains only $1,000. With no other contributions, $33,750 remains over 23 checks, averaging approximately $1,467.39, with an adjustment to the final deduction for rounding. That calculation identifies a question for the employee and payroll; it does not authorize changing the election without consent.

Inspect bonus compensation, leave, rehires and employees changing status. Reconcile the definitions used by payroll with the plan document. Correct arithmetic on the wrong compensation field still produces the wrong contribution.

If a discrepancy appears, preserve the record, identify all potentially affected employees and ask the appropriate administrator or advisor about the correct remedy. Do not fix one system informally while leaving the recordkeeper, employee communication or required correction process inconsistent.

Turn the first check into an ongoing control

For an ERISA-covered plan, following plan terms and prudently monitoring providers are part of responsible administration. A vendor's written assurance can support the review, but it does not replace understanding unresolved exceptions and confirming the work performed.[5]

Assign a person to compare payroll totals with plan receipts after each submission. Track rejected files, missing participants and unexplained changes in deductions. Escalate items that remain unresolved rather than letting them disappear into an email exchange between vendors.

Employee communication can make the control more effective. Explain where a deduction appears, when employees should expect to see contributions and whom to contact about a mismatch. Clear instructions may reduce confusion and support confidence in the benefit, without promising a particular retention outcome.

Begin with the first live file, identify the exceptions and document their resolution. A small sample of ordinary and boundary cases can expose problems early, while a consistent reconciliation process helps keep the plan aligned with its terms throughout the year.

Related reading

Have more questions about retirement plan operations and payroll reconciliation? Email Dave at dave@financialforte.com to discuss your questions and next steps.

The contact invitation is current; it does not imply this contact path existed on the historical reference date.

Educational information, not personalized investment, tax, legal or benefits advice. Examples use hypothetical assumptions. Verify current rules and your circumstances before acting.

Sources

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