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Hi! I have a small plan that has always consisted of only 4 owners. Funding their PS has never been an issue until now when they've started to hire part time employees. The coverage test is failing. FACTS: Eligibility is 21 and 3 months svc with monthly entry. They exclude part time (PT) employees 3 year Vesting PT EE #1 - Hired 5/13/2022. Termed 4/20/23. Excluded PT but met eligibility & could enter 9/1/22 PT EE #2 - Hired 5/16/2023. Termed 8/7/23. Excluded PT and termed before entry. PT EE #3 - Hired 10/11/23. Excluded PT and still working PT. Would enter 2/1/24 PT EE #1 who would have been eligible has terminated and would be 0% vested. I guess my question is an 11g amendment required here or could PT EE #1 meet statutory exclusion and be excluded from tests? If I have to do an 11g amendment and I need to expand coverage what is the best way to do so? Who would get an allocation? The one possibly eligible PT'er is gone and would be 0% vested. PT EE #2 termed before entry. And PT EE #3 is meeting eligibility in 2024. What is the solution here?

A plan has a safe harbor match allocated on an annual basis. The client has realized that there were 4 employees eligible on January 1, 2018 who have not been given the opportunity to defer. I will advise them on the correction under EPCRS, which is a 25% QNEC based upon 3% missed deferral and a missed SH Match plus earnings. They will notify employees as required. Question - Is the compensation based upon compensation from 1/1/2018 through the date the employee is given the opportunity to participate? I would think yes, but when I calculate the annual safe harbor match for ALL employees at year-end, this portion of compensation will be included in the calculations. It would seem as though the affected employees will get matched on this compensation twice. Is that how it is meant to work? Thanks!

At the beginning of 2017 the client's compensation definition was W-2 wages excluding fringe benefits. A bonus was paid to one NHCE, from which they did not withhold deferrals or pay the match. After being reminded by the TPA (me) that they were supposed to treat bonuses just like any other pay check, things got out of hand. The payroll person withheld the amount that should have come from the bonus check from the next regular pay check. Not realizing this had occurred, we instructed them to make a 50% QNEC and 100% of the match. (Too late for reduced QNEC.) Instead, they deposited a 100% QNEC and 100% of the match. All deposits were made in 2017. How do we fix this? And which amounts do we use in the ADP test?

Controlled group: 2 employers with their own 401(k) plans. No Profit Sharing. 401(k) coverage for 2017 fails. Plan 1 is safe harbor match, covers only 1 HCE and a lot of NHCEs. Plan 2 is not safe harbor, has no match, no PS, but covers 5 HCE owners and 1 NHCE, prior-year tested. The plans fail ratio percent test (result is under 10%). The plans cannot be aggregated for coverage testing. Seem that plan 2 needs to open up coverage to some of the plan 1 NHCEs by providing QNECs to until enough NHCEs are above the safe harbor percent and then run ABT. That QNEC is based on the 2017 ADP for the NHCEs in plan 2. The problem is that the NHCE in plan 2 did not defer in 2017, so the NHCE ADP for 2017 for plan 2 is 0% and thus the QNEC is 0%. Therefore, is there a reasonable argument that no action is needed for plan 2 to pass coverage for 2017? Note: the NHCE ADP in 2016 was also zero.

It was discovered that the coverage testing has been done incorrectly for several years (more than 5). Plan fails coverage and there is no fail-safe language so we are proposing an 11(g) amendment and to file the correction under VCP. The TPA's suggestion is to allocate a QNEC contributions to the lowest paid participants sufficient to pass the AVB. While QNEC for ADP testing needs to be limited to no more than 5% or twice the representative rate, there doesn't appear to be any limitations for purposes of the QNEC for ABT. Tres Reg 1.401(a)(4)-11(g)(vii) states that the QNEC should be equal to the NHCE's compensation multiplied by the ADP and/or the ACP so I'm afraid that allocating a QNEC contribution to the lowest paid employees might be considered discriminatory by the IRS. It does not appear to me that they would pass the reasonable classification test. Is it permitted to target the QNEC allocation? Is there any guidance on how to allocate the QNEC?

Assuming the plan document does not preclude the following, can "Excess Allocations" placed into an "unallocated account" pursuant to EPCRS, Rev Proc 2016-51, Section 6.06(2)be used to fund corrective QNECs required under EPCRS, Rev Proc 2016-51, Section Appendix A.05(2)(b, for a missed deferral opportunity? Situation: Sponsor failed to withhold deferrals for an eligible participant, but contributed $7000 to his deferral account anyway. Since the amounts were not deferrals, the amounts are being removed from his deferral account and placed in an unallocated account. This participant now has missed deferrals and is owed a QNEC. Can the amounts removed from his account and placed in an unallocated account be used to fund his corrective QNEC? Please assume there is nothing in the plan document that would preclude such a practice. Thanks in advance for your thoughts.

We administer a SHM 401K. Auto enrollment, default deferral 4% in order to get the 4% SHM. it has come to light that a couple of the eligible employees were not given the opportunity to enroll in 2016. Accountant seems to believe these people are due a QNEC; how is a QNEC determined in such a case? Would the employer in this case be obligated to make the 4% contribution as well as a 4% match?

Greetings, Is it recommended to refrain from depositing calculated corrective contributions until after a VCP submission has been reviewed and blessed by the assigned reviewer? On the one hand, if the IRS reviewer does not agree with the amount of the corrections, and the corrective contributions have already hit affected participants' accounts, it would make matters more difficult. On the other hand, if the deposits are not made until after confirmation by the IRS reviewer (which could be months later), the amount of lost earnings would be for a longer period and at a greater expense to the plan sponsor. Assuming deposits are not made until after the IRS gives its blessing on the proposed corrections, how far out is it recommended that the lost earnings be calculated to (i.e., the end period for the interest calculation)? Thank you!

9/30 PYE 3% ER Safe Harbor Cross Tested with two groups There were two employees (NHCE) that received QNEC contributions due to a missed deferral opportunity. Where do these QNEC contributions come into play when calculating the cross tested profit sharing allocation? How does relius handle the QNEC contributions when calculating the cross tested profit sharing allocation? What should I be looking/checking to make sure the calculation is being done correctly?

Greetings, I am in the process of preparing a VCP for the below described errors. Where I'm at a loss (despite extensive review of the forums) is (a) Can the correction for the use of the incorrect match be limited to just those participants making deferral (those with "account balances") by using a QMAC instead of a QNEC correction; and (b) If a prohibited transaction occurred as a result of the incorrect match % and the loss earnings, thus requiring a VFCP. FAILURES: 1. Failure to correctly apply the Plan's matching contribution provisions to employees during 2012 and 2013 (Plan Sponsor applied lower matching % to all new employees, despite the Plan language limiting this to only acquired Company A employees) 2. Corrections necessary to pass the non-discrimination tests for 2013 and 2014 due to the three tier matching contribution formula (Plan Sponsor used the wrong matching % in performing tests) Proposed Correction under VCP A. For those participants that received the smaller incorrect match AND that had "account balances" (i.e., limiting the correction only to those participants making elective deferrals). a QMAC (as opposed to a QNEC) could be made under VCP. [i know there's a strong argument this correction should go to all eligible participants - even those not deferring - but such a correction would be astronomically higher] B. Since the incorrect employer match was used, resulting in lost earnings, I believe this would be a prohibited transaction (outstanding match % became plan assets when PS filed tax return) and thus I would propose a VFCP be filed with the DOL (meaning no filing of Form 5330 Return of Excise Taxes). However, looking at the VFCP Application, there is no box to check for "missed employer matching contributions/earnings" Any insight would be most appreciated. Thank you...

New safe harbor plan was executed timely to begin deferrals and safe harbor on October 1, 2015, plan is a December 31 year-end. They failed to offer deferrals until sometime in November. Under Revenue Procedure 2015-28, if the problem is found and deferrals start in the 3 month period, no QNEC is needed for the missed deferrals assuming the proper notice is provided? Seems like that's the case since an Employee Elective Deferral Failure includes a failure to afford an employee the opportunity to make an election. Agree?

Employee A elects to contribute $1,000 for 2014. If the employer misses the deferral and corrects it by making a 25% QNEC or $250 in 2015, does the QNEC get included for deduction limit purposes? IF so, is it included for 2014 deduction limit or 2015? Is it included for annual additions limit? What if the employer wanted to make the employee whole by making a $1,000 QNEC? These are violoation correction QNECs not QNEC to pass ADP so I was wondering if the rules were different. Thanks

We are TPA for a safe harbor nonelective plan that is terminating. The practice was sold (asset sale) on January 6, and all the employees terminated, but the corporation was kept alive and continued to generate income, which resulted in the owner making a full 401k contribution. I believe i am correct in stating that to terminate the plan, the 3% safe harbor contribution must be made AND the plan must be subject to ADP testing. The testing would not go well, as there were no deferrals taken from the 6 days of employee pay. It would seem to me that the best thing to do would be to make a QNEC, since the 6 days of compensation won't be much. Right now, I'm thinking that we need 4% of pay to pass testing. The question is whether we can apply the 3% safe harbor contribution toward testing, such that the employer would only need to fund an additional 1%. i would think so, but want to make sure before we give it the thumbs up. Any assistance during this very busy time is most appreciated! Dog

Rerunning 2011 ADP for a plan due to issues with ownership changes we weren't aware of. Long story, but ERISA attorney has advised we are to split plan into 4 separate ADP tests. 1 of the ADP tests is failing, other 3 are passing. However, I performed the testing by disaggregating the otherwise excludable nonHCEs. Obviously, corrections are being made more than 12 months after plan year-end. EPCRS states that plan may not be disaggregated into component plans for determining the correction for failure. ERISA Outline Book indicates the prohibition against restructuring is because the IRS doesn't want employer to reduce the amount of corrective distributions to HCEs and thus the amount of the one-to-one contribution for nonHCEs. QUESTION: Is the EPCRS saying that it is OK to disaggregate to run the tests, but if the test fails then I have to add back the disaggregated nonHCEs before I determine the refunds for the test that is failing (which is what I have always thought was the case...)? Or am I to understand that I can't disaggregate at all when I run the tests in the first place? Thanks!!

Plan has "Fixed" Contribution equal to 5.7% of compensation and 5.7% of excess Compensation - 100% vested Plan Also has "Match" Contribution equal to 100% of elective contribution up to 5% of compensation - 2/20 Vesting Plan Also has "Minimum" Contribution equal to 3% of compensation minus the fixed contribution for the year. If fixed exceeds 3%, then no minimum made - 100% vested Plan uses Prior Year Testing Plan Document does not speak to a designated QNEC for correction of a failed ADP test Question: Should the plan fail the ADP test, can the Minimum contribution be re-characterized as a QNEC to pass the ADP test?

First time I have a Plan that did not start 401(k) deferrals for 2 employees. The Company put in a QNEC contribution for the 2 employees. Would the QNEC amounts be considered late deferrals for purposes of Form 5500-SF question 10a? Or would the QNEC itself take care of the issue? TIA

For the December 31, 2012 plan year, a plan uses current year testing to run the ADP test. Test fails. The sponsor elects to deposit a QNEC to non-HCE's before the end of 2013. The sponsor also amends the plan to prior year testing before the end of 2013. Should the corrective QNEC deposit be included in the 2012 non-HCE deferral average for the 2013 ADP test when using prior year testing? Thanks.