Search the Community

I have a prospective client who established a Solo 401k for him and his wife last year. He did not fund it. Turns out he has a part-time employee who was eligible. There is no hours or service requirement. Document preparer said that is their default when completing documents. He doesn't mind paying a safe match contribution to the employee, but the issue is that she was not offered the opportunity to defer. But how do we correct for the missed deferral opportunity when nobody deferred? is it possible to correct the original plan document to align with the client's intention? Retroactive amendment? Can we just pretend the plan never happened since it was funded or filed with the IRS? (just kidding)

Might a plan self-correct a missed deferral opportunity by allowing the participant to deposit an amount to the plan equal to the missed deferral amount? Due to an error in plan sponsor's payroll department, an eligible Highly Compensated Employee's deferral election of $24,000 was not carried over from 2016. This was not discovered until this past month by the participant's tax accountant who was preparing her 2017 tax return. Plan sponsor is prepared to self-correct under Rev. Proc. 2016-51 by making a qualified nonelective contribution (QNEC) equal to 25% of the Missed Deferral Opportunity, as adjusted for earnings, and supplying the requisite notice. However, participant and participant's accountant would prefer to pay $24,000 to the plan and have the plan sponsor issue an amended W-2. Plan sponsor is agreeable, since would save them the cost of the $6,000 QNEC. However, my initial reaction is that such a deposit would fail to meet the definition of an elective deferral. While it might be argued that the contribution will be made "pursuant to a cash or deferred election under a cash or deferred arrangement," I don't see how it can be categorized as an "employer contribution."

Suppose a plan document was drafted and executed to allow both pre-tax and Roth deferrals, but the sponsor wasn't ready to handle Roth yet internally so the initial enrollment materials did not show that Roth was even available, but the SPD did describe Roth. About 3 months after the plan had been in effect, they communicated that the Roth deferral option was not available to the participants. What do eligible employee participants "get" or what is the correction?