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We don't have enough information to be able to tell if it applies, but there an exception under EPCRS (as recently updated) for brief periods of exclusion. If the exclusion of the person who elected 10% fits the criteria for it, they won't have to make a QNEC deposit to correct the missed deferrals. The 10% person does need to get the match he/she would have received if the deferrals had been done correctly. With the regulations prohibition on pre-funding deferrals and match, the best course of action for the 0% person is probably to refund the erroneous deferrals and income.

My point was that if someone has compensation for the full year sufficient to defer the $18,000/$24,000, but doesn't have sufficient comp for the 24 pay periods to do so, you violate the following sentence in the cite: I don't see anything that gets you around this by telling them up front about the restriction.