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BG5150

Failure to start deferrals in auto-enroll plan

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I want to get this straight; something seems wrong.

If a sponsor does not start somebody's deferrals in an auto-enroll plan, there is no QNEC needed if they start the deferrals no later than 9-1/2 months after the plan year in which the first deferral was missed?

So, if someone was eligible 1/1/18, there would be no QNEC if they start the deferrals by October 15 2019?  That's 21-1/2 months late!

(I understand that they have to start as soon as it's brought to their attention, and that match has to be calculated from 1/1/18.  But that seems like an awfully long time!)

From EPCRS:

Quote

If the failure to implement an automatic contribution feature for an affected eligible employee or the failure to implement an affirmative election of an eligible employee who is otherwise subject to an automatic contribution feature

does not extend beyond the end of the 9½-month period AFTER the end of the plan year of the failure (which is generally the filing deadline of the Form 5500 series return, including automatic extensions), no QNEC for the missed elective deferrals is required, provided that the following conditions are satisfied...

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BG,

I just read this section after you posted because I was curious.....

You read it right.  No QNEC for missed elective deferrals.  The participant would get match.  AND, that is a long time!!

So does the question become "why the special treatment for an automatic contribution arrangement plan"?

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All it says is "failures related to automatic contribution features..."

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The IRS intentionally put in special treatment for corrections made for plans with automatic enrollment. The IRS was told automatic enrollment was good for getting more employees to save for retirement and that they should support that. At the same time, the industry was telling them that the 50% QNEC for a missed deferral was a significant deterrent to adopt automatic enrollment provisions.

If you look further at Revenue Procedure 2019-19, you will see a sunset clause that these reduced correction costs for automatic enrollment plans will end for failures that occur after December 31, 2020. The IRS is saying that if these more lenient corrective provisions result in more employers adopting automatic enrollment, then the IRS will likely extend these provisions beyond December 31, 2020.

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According to the IRS website, there is no relief from the QNEC if someone is terminated at the time you discover the error, since they cannot be subsequently automatically enrolled. They need a 505 QNEC and related match. 

If the participant has been automatically enrolled or affirmatively enrolled earlier than the latest date provided under SCP,  they have to receive the special notice within 45 days of commencing deferrals to have relief from the QNEC.  So if someone in payroll or HR discovers and "corrects" the error and does not tell the TPA (to provide the notice), or knows enough to provide the Special Notice within 45 days, then the 0% QNEC or 25% QNEC is not available. 

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