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The 404 is limit is 25% of compensation paid during the tax year. So unless the sponsor also had a short tax year from 11/1 to 12/31 then there is no problem.

Maybe it is me but I find this question confusing. The 404 limit is 25% of eligible gross compensation. You can have a different definition of compensation for testing and allocations that are well below gross compensation and still deduct 25% of gross compensation of the eligible participants. It isn't clear to me why a change in compensation for testing lowered the 404 limit. But to answer you questions directly if it is true you have a non-deductible contribution there is no getting out of the excise tax that I have ever heard of. If they are filing late there is no getting out of the interest on the late tax. If the IRS assess a late penalty you can sometimes get the IRS to waive that part if you can show cause and there isn't a pattern of being late. You write a letter to the IRS after they send the penalty letter to your client asking for a waiver. It has been a while since I wrote one of those letters but I think the IRS notice even tells you how to ask for the waiver.

I would disagree. I know of no authority that would allow you to have anything done but 6 separate audits. I doubt an auditor would do an audit that spans 6 years vs 6- 1 year audits. The client might be able to get the CPA firm to factor into the costs the fact they would only need to send their people into the field once and look at all 6 years at that time. Although I doubt it would be a huge savings as there will be close to as much work as having done 6 audits over a 6 year span. But the way I understand the rules you need 6- 1 year audits. They can be done at the same time but you need 6.

And if we could get rid of those pesky deadlines....

This process also may have been put in place as another protection against identity fraud, particularly since the Equifax breach. This way the check goes to the employer who sends it to the employee's address that the employer has on file, rather than an address that a fraudster may have requested.

I'm having trouble understanding what the problem is. This is an EX employee who is bugging her former company? Fine; she calls and says "I got the check instead of it being sent directly to Great West". Assuming the check is made out to Great West, the answer from the former employer is (and only once): "Oops! Sorry. They sent it to you by mistake, so now you should send it to Great West. Nothing we can do about it but it's not a tax problem because the check is made out to Great West and will be reported as a rollover. Have a nice life!" If she calls again berating the HR department; the answer this time is: "Still sorry; we told you what to do. Do it or not, but now it's in your hands to make it happen. Don't call again."