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One-to-One Correction with QNEC allocation of more than 5%


NW529

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We have a failed 2015 ADP test that was not corrected timely. We are now correcting under ECPRS using the one-to-one correction method.

Our intention is to allocate the QNEC to employees who were NHCEs in the year of the failure and are also NHCEs in year of the correction. If allocated this way, three NHCEs would receive a QNEC allocation of greater than 5%, while three would not receive a QNEC at all (they are no longer employed). 

Is this allocation permissible using the one-to-one correction? 

Any insight is appreciated! Thanks

 

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Thanks for the reference, @Bri! Mainly, I am wondering if it is permissible to allocate more than 5% to some NHCEs and 0% to the former employees?

Based on 19-19, the only allocation restriction is that eligible employees (excluding former employees) receive a uniform allocation, which they do. My initial thought is that this allocation is allowed, but additional feedback is appreciated!  

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I'd think so, since it's not so much a "targeted QNEC" like the typical bottom-up rule.  It seems like a straightforward interpretation of the rev. proc., but I'd suggest an "actual attorney" give you a formal blessing.  (Since THAT, most certainly, I am not.)

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What would happen if you had 10 NHCE in 2015, but only 2 of them are still employed?  Could you just give a QNEC to just those 2?

What if it was 2 out of 15 or 4 out of 30?

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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I suppose that since this is outside the SCP window, the IRS would scrutinize it under a VCP application.  They might suggest an alternative in light of it only being 2 current employees benefiting. 

(Heck, what if ALL the NHCEs had turned over?)

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