Elig EE not given opportunity to defer

[doombuggy]

We were just informed that a plan of our has a p/t ee who was eligible to enter the plan on 7/1/01. She works 3 days per week, so meets the 1000 yrs elig. requirement. I see that she entered the plan on 7/1/01 (at prior TPA) and was given a profit sharing contribution at year end. Same for 12/31/02 and 12/31/03. We, the new TPA, assumed that she worked f/t, but declined to defer. Earlier this week, the agent was notified that she was p/t but eligible, and he thinks she was never given the opportunity to defer into the plan.

Since more than 2 years has passed, it looks like its VCP for this plan. Either way, how can we make a correction to her (she wants to defer now)? Someone indicated tht we would need to calculate the average deferral % for the plan, and give that to her. I beleive the plan also matches, so the co. would have to pay the match as well. What about earnings?

Would you consider this "insignificant" enough to go the way of SCP?

Thanks for your help!

[jquazza]

I believe that you could very well determine that this is an insignificant operational failure. That would depend of course on the employer's demographics. If that part-timer is the only rank-and-file employee, you may have a hard time making that case. If there 500 employees and she is the only one affected, I would think it is insignificant and self-correct under SCP.

The sponsor needs to make corrective contributions that equal the average deferral rate of her group (i.e. HCE/NHCE) for the years in questions plus the associated match. You need to adjust the coorective contribution for earnings as well.

[doombuggy]

There are 8 active ees currently in this plan. 3 of them are HCE; the p/ter is one of the 5 NHCE.

[Alf]

Very small plan, so there is very, very little (i.e. no) chance that the IRS would open this up on audit if you fully corrected based on the Appendix. Self correct and include a memo about how this is insignificant and move on. Cut corners on the approved IRS correction and I think you would raise a flag.