Correction by Retroactive Amendment - Limitation to Impacted Employees?

[rocknrolls2]

Company X maintains a QACA safe harbor plan for its employees. All employees must be at least age 21 to participate. Those employees who are classified as interns, seasonal employees and part-time employees, are eligible to participate if they completed at least 1,000 hours of service. During 2014, certain employees who had not attained age 21 and certain interns, seasonals and part-timers who had not completed at least one year of service are permitted to participate prior to satisfying applicable age and service requirements. The employer has two options here: (1) treat the premature participation as an overpayment and reduce the account balances of the affected participants with earnings by the amounts prematurely contributed. If the amounts prematurely contributed were elective deferrals, they would be refunded to the affected employees. If matching or other employer contributions were allocated, such amounts plus earnings would have to be held in an unallocated account to reduce future employer contributions or (2) adopt a retroactive amendment eliminating the age and/or service requirement for eligibility for the year the affected employees started participating going forward.

As to option (2), Rev. Proc. 2013-12, App. B, Section 2.07(3) says that if an employee is prematurely allowed to participate in the plan, the retroactive amendment may change the eligibility requirements with respect to only those ineligible employees that were wrongly included, and only to those ineligible employees." This seems to suggest that the amendment could be adopted solely to let those participants prematurely in and no one else provided that the other requirements specified in the Rev. Proc are met. It seems that this option would be the cleanest for an employer to adopt if it is in fact permitted.

Does anyone else read this language as narrowly as I am?

[Mike Preston]

Yes.