Improper Exclusions from Comp

[Guest Chaffee]

I am a CPA and have a number of Plans which have improperly excluded certain portions of compensation for deferral and matching purposes (e.g. manual checks, bonuses, etc.). In the past, the general rule I've recommended Plan Sponsors to follow (after discussing with their ERISA counsel) is to make a corrective contribution for the deferral (at the ADP%), the lost match (at the ACP%) and lost earnings.

In reading APPENDIX B of Rev Proc 2003-44 (Section 2.02 (1)(a)(ii)(E)), there is discussion of the Special Rule for Brief Exclusion from Elective Deferrals. The example is specifically geared towards realizing an eligible participant was not given the opportunity to defer, but still allowing that participant 9 months to make contributions in the Plan Year.

If a Plan Sponsor does not withhold deferrals on a one-time bonus payment, could the principle of this section be applied? While this would affect a wider population than the example contemplates, the participants still would have the rest of the entire year to defer (> the 9 months in the Rule). The Plan Sponsor would still be liable for the lost matching contributions, but making up the deferrals is the portion most Plan Sponsors find difficult to swallow (especially since most employees probably prefer keeping their entire bonus).

Has anyone considered applying the principle of the "Brief Exclusion" rule to other common errors like these?