Narrative:

ATC reported that our transponder altitude indicated 500 ft lower than what we were assigned. Our altimeters showed we were at our assigned altitude. Changed encoding (altimetric) source and no further problems.

Google
 

Original NASA ASRS Text

Title: A FOKKER 100 IN CRUISES AT FL280 IS ADVISED BY ATC THAT XPONDER IS INDICATING 500 FT LOWER THAN ASSIGNED ALT.

Narrative: ATC RPTED THAT OUR XPONDER ALT INDICATED 500 FT LOWER THAN WHAT WE WERE ASSIGNED. OUR ALTIMETERS SHOWED WE WERE AT OUR ASSIGNED ALT. CHANGED ENCODING (ALTIMETRIC) SOURCE AND NO FURTHER PROBS.

Data retrieved from NASA's ASRS site as of July 2007 and automatically converted to unabbreviated mixed upper/lowercase text. This report is for informational purposes with no guarantee of accuracy. See NASA's ASRS site for official report.