Ineligible Participant

[Guest Much2Learn]

401(k) with Match. Plan permits nonelective contributions, but never makes one. All employer contributions 100% vested.

Participant brought into plan on date of hire. 6 month eligibility requirement. Oops. (I didn't do it).

Document provides for refund of deferrals, and allocation of employer contribution as forfeiture if ineligible employee participates in plan. Problem is twofold: 1. no forfeiture allocation language in document because all monies vested, and 2. don't understand which year forfeiture is applied to because:

" . . . the amount contributed with respect to the ineligible person shall constitute a Forfeiture . . . for the Plan Year in which the discovery is made . . .

Does this mean that because I discovered this problem in 2002, the forfeiture will be allocated as part of the 2002 contribution?

Or does it mean that this error was discovered for the 2001 plan year, so the forfeiture will be allocated as part of the 2001 contribution?

I would assume that because there is no specific language on how to treat a forfeiture, that it would be treated as the kind of contribution it is . . . a match.

If it is treated as a match, I cannot apply it to 2001, because the match has already been made to its limit for all who have deferred. If I must apply it to 2001, can I characterize it as "nonelective?"

If I must apply it to 2002, the year in which it was discovered, no sweat . . .

This is a Corbel document, circa 1994.

[Mike Preston]

Consider te EPCRS approach. 1) Amend plan to allow this person in when they actually came in. 2) Submit amendment for approval.

Assuming the individual was not an HCE (hard to be in the first year, right?) then it should work, shouldn't it?

If client doesn't want to do that, then I would lean towards the no sweat description.

[Guest Much2Learn]

Thank you! I think the "no sweat" approach will work best. Immediate eligibility has ramifications for the other three employees for whom the same mistake was NOT made. hmmmm.