Elgible Employee Excluded from Participation: Method of Correcting Problem

[Guest rocnrols2]

X sponsors a cafeteria plan for its employees. Employees who are regularly scheduled to work 1,000 hours or more are eligible to participate in most coverages as of the first day of the month after they complete 30 days of employment. Employees who almost never complete 1,000 hours, must first complete 1,000 hours to be eligible. A was a part time employee who first completed 1,000 hours in 2000. However, A was improperly not permitted to participate in the plan. A became a full-time employee in 2003. What can X do to correct this situation back to 2000? X's cafeteria plan has default coverages for new employees failing to enroll and a default for existing participants who fail to enroll for the following year. Although pre-tax premiums are not available, can X charge A for his/her share of the premium on an after-tax basis for 2000-2002? Your input on this would be most appreciated.

[Mike Preston]

This is covered in the EPCRS Revenue Procedure. Essentially, you determine what the average deferral was for those who are NHCE's and the employer puts that amount in, to the extent it was missed, and makes up for lost earnings, too.

[Guest rocnrols2]

While this would work for the exclusion of these employees from the 401(k) plan, my original question concerned how to correct this under the cafeteria plan. The last I checked, there is no similar program for correcting cafeteria plan errors.

[Mike Preston]

You are right, EPCRS doesn't cover cafeteria plans.