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I don't believe there is a specific correction set forth anywhere to cover this situation (especially since the super catch-up rule is so new). However, it seems you could analogize to the situation where a plan did not offer the regular catch up to all of its employees. In such a case, the plan would be treated as a discriminatory plan and, unless corrected, the qualified status of the plan could be adversely affected. To correct this type of failure, it would seem that Plan A employer could self-correct under EPCRS generally by: providing the affected employees with the right to make the catch-up (it would be required as long as Plan B doesn't stop making the catch-up under its plan) and making QNECs to the affected employees to compensate them for their missed deferral opportunity (so likely 50% of the additional catch-up plus earnings). Otherwise, if Plan B agrees, they could utilize VCP and submit the retroactive amendment to the IRS for its approval. Note the IRS doesn't usually agree to retroactive amendments unless it increases benefits for plan participants--here, the request would include distributing the benefits of one group from the plan so their benefits will be being reduced. The client could go to VCP and propose any other correction it can think of... e.g., propose to simply amend Plan B to stop the catch-ups with no distributions. Here, it is likely the IRS would say no, unless Plan A gives the QNEC.

@RatherBeGolfing Just to be clear... optional aggregation is permitted in 3 circumstances stated generally as: (i) employers using a common paymaster (not that many employers actually meet the common paymaster rules because it should only cover "concurrent" employees), (ii) an employer and one or more other employers in a 414(b), (c), (m), or (o) control group, and (iii) for successor employers in asset purchase. See § 1.414(v)-2(b)(4)(ii), (iii), (iv) Federal Register :: Catch-Up Contributions Administratively it could be an issue where several controlled group members participate in the same plan and employees work across multiple entities in the controlled group or are transferred between the entities. Without aggregation, mid-year transfers could cause the employee's catch-ups to be characterized differently, so there will need to be more communications with the employees to minimize confusion. Certainly more reasons not to do this but it depends on the employer and their structure.

There's no doubt the excess has to be refunded. If nothing else, it would be a violation of state wage withholding laws to fail to refund. Probably ERISA fiduciary duties also implicated. The refund will be taxable income because presumably these amounts were initially pre-tax health plan contributions through the cafeteria plan. As to whether the employee has to be paid interest, that's a good question. I'm not aware of any guidance directly addressing the issue. As Peter noted, this is likely a very small amount anyway.

You can test on a contributions basis to avoid gateway. That would increase the 1.87% to something higher to be at the HCE rates with imputed disparity. But first you must pass coverage, so start by allocating something to get to 70% coverage, say $100 to enough NHCEs to get your 70% - maybe pick the lowest paid NHCEs, or whatever is preferred by the employer Coverage passes, so let’s now move on to nondiscrimination testing. Pick just enough NHCEs to get that higher PS needed to be at the HCEs midpoints (use imputed disparity if that helps). Run ABPT either on a benefits basis or a contributions basis, whichever is better. If the ABPT passes, you’re done. Otherwise, troubleshoot what is needed.

It doesn’t say “first” or “up until”. You’re adding those things. Things generally happen in order. let’s say someone makes $2,350,000 per year and defers 1% of pay each paycheck monthly. The match formula is 100% up to 5% of pay. The person would defer $1,958.33 each paycheck and receive a match of the same. Again assuming the document is not written stupidly, that would continue during the year. The payroll would need to be setup so that deferrals stop when reaching the 402(g) limit (not the comp limit). It would also need to be setup to stop the match when it reaches $17,500 because that is 5% of $350,000 and the maximum allowable match. At the end, the $350,000 comp limit is applied. But it’s not required to be the first $350,000 earned.

I have facilitated this type of transfer several times. The ERISA Outline book has a lovely discussion about it in Chapter 6, Section III, Part D, 3.c.