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The explanation from @C. B. Zeller is great. But also take note: both stability period and lookback month should be defined in the plan document. using a one-month stability period and one-month lookback will (generally) provide the closest to "true market value", but that combination is the most difficult to administer. Most plans I've seen use the PY as the stability period, often with a lookback month of "second month preceding".

A plan can exclude employees by classification, and an employee scheduled to work at least 20 hours a week is a classification. The plan will have to pass 410(b) coverage testing. Without getting too technical, there are multiple ways to conduct coverage testing, and most plans start out running the Ratio Test. At the most fundamental level, the plan would need to allow at least 70% of the NHCEs to participate in the match. So, yes, it is possible, and it adds another layer of compliance to test. This is a very high level response, and the details will matter significantly.

Assuming that the plan year is the calendar year, then I agree.

From the point of view of recordkeeping, treating the amounts posted in the system as pre-tax and accounting for the correction as if an in-plan Roth rollover occurred is creative and gets the plan accounting close to what should have happened, but consider some of the other potential implications of of this approach. The impact on the personal taxes for each individual could vary significantly. The amount of Roth deferral reported as taxable on a W-2 could increase an individual's marginal tax rate for the year for which the income is reported which would result in the individual overpaying taxes had the error not occurred. The amount of Roth deferral not reported as taxable could decrease and individual's marginal tax rate resulting in a larger amount of unpaid taxes. If a correction happens to involve a plan fiduciary, company executive or HCE and the correction resulted in less taxes than should have been paid, then that individual's correction and the plan would be looked upon unfavorably by the regulators. This could expose the individuals involved and the plan to more serious issues tied to fiduciary responsibility, to nondiscrimination or to tax avoidance. Conceivably, the plan may want to try to characterize the correction as an Eligible Inadvertent Failure. However, the EIF rules generally are designed to encourage self-correction, but they are not designed to allow a plan to make up its own correction method. Given that the IRS has a prescribed correction, it makes sense to follow it. A mistake happened. Own it, follow the rules, fix it, take steps to prevent it from happening again, and know steps were taken to protect the plan and the individual's involved.

I'm sorry to hear about your situation @foggyjack. Thanks for sharing to help others avoid the same predicament. The small sliver of good news is the DOL's model COBRA election notice was updated recently to incorporate this information. Here's the new language: https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra If you are enrolled in both COBRA continuation coverage and Medicare, Medicare will generally pay first (primary payer) and COBRA will pay second. Certain COBRA continuation coverage plans may pay as if secondary to Medicare, even if you are not enrolled in Medicare. For more information visit https://www.medicare.gov/medicare-and-you. Here's the summary I recently shared on this topic: https://www.newfront.com/blog/the-medicare-form-cms-l564-for-employers Medicare Pays Primary (COBRA Assumes Primary Medicare Payment—Even If Not Enrolled!) Perhaps the most significant reason a post-65 retiree should avoid relying solely on COBRA for any period is that COBRA will likely provide only secondary coverage. In general, the MSP rules require that the employer-sponsored group health plan always pay primary to Medicare for individuals in “current employment status,” which applies to active coverage. However, retirees enrolled in COBRA are not receiving employer-sponsored coverage based on “current employment status.” In other words, they are not enrolled in active coverage. This means that Medicare pays primary for anyone enrolled in COBRA. In the COBRA context where the MSP rules do not apply and Medicare is primary, the plan can assume the Medicare payment rate and pay only as secondary coverage for any individual who is eligible for COBRA. This is true regardless of whether the individual is actually enrolled in Medicare. For example, if an individual’s services would have been covered primary by Medicare if the participant were enrolled in Part B, COBRA coverage can pay only the amount that a secondary plan would pay. For individuals not enrolled in Part B, that leaves the amount that would have been paid by Part B as a coverage gap for which the participant is responsible. Medicare-eligible retirees will therefore never want to be in a position where they fail to enroll in Medicare while enrolled in COBRA under a plan that assumes the Medicare primary payment rate regardless of actual Medicare enrollment. Here's a quick slide summary: 2024 Newfront Medicare for Employers Guide

Yeah, it would be so easier if everything would forget that confusing "entitled" word and just use "enrolled".