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Interesting line of thought.

@Benefits Plan you commented the employee was improperly excluded from participation. Some additional details would be helpful. When did the employee receive EACA Notice informing them of the terms of the EACA, and notifying them that they were eligible to make deferrals under the plan? What was communicated to the employee about the timing of notifying the plan of an election not to participate, and procedure to opt out? Are there other auto-enrollment features in the plan (e.g. QACA) and, if so, what are they? How much time has passed between the date the employee should have been included and the date it was discovered that the employee was improperly excluded? Is there a match under the plan, and if so what are the provisions related to the match? Plans with automatic enrollment features have some very liberal rules for correcting a missed deferral opportunity that could allow a plan to avoid a QNEC for an MDO up to 9-1/2 months after the close of the plan year in which the employee could have started deferrals. It is possible that there is a path forward that not only satisfies the participant's desire not to have any balance in the plan, and that also could save the employer some of all the cost of the QNEC. Consider the correction methods available under IRS Notice 2024-02 section I. The opening paragraph of this section reads: "Section 350(a) of the SECURE 2.0 Act adds new section 414(cc) to the Code. Section 414(cc) provides that, if certain conditions are satisfied, a plan or arrangement will not fail to be treated as described in section 401(a), 403(b), 408, or 457(b) solely by reason of a corrected reasonable administrative error made (1) in implementing an automatic enrollment or automatic escalation feature with respect to an eligible employee (or an affirmative election made by an eligible employee covered by such a feature), or (2) by failing to afford an eligible employee the opportunity to make an affirmative election because the employee was improperly excluded from the plan (implementation error). " The concept of an "implementation error" should now be considered when addressing MDOs in plans with automatic enrollment.

Agreed! And even if you went to a VCP filing on this (which would be an absurd waste of time and money IMHO) I'm very dubious that the IRS would approve it.

What rule/mechanism can you cite for a retroactive opt-out? I honestly don't care about what the participant wants. This is a plan issue, you correct and move on. Do not make the situation worse by trying to do what they "want" instead of just doing what is right.