Correction for excluded eligible employees in a safe harbor plan

[JDuns]

A plan passes ADP/ACP by making safe harbor matching contributions on a payroll basis (providing all appropriate notices).

The plan provides that employees are eligible to make unmatched contributions on their date of hire and become eligible for their safe harbor match on the entry date following 1 YOS (and age 21). Until the IRS announced its new interpretation of the rule of parity for 401(k) plans, the plan had applied the rule of parity for rehired participants who had not been vested in their non-401(k) benefits.

Based on the prior interpretation, a rehired participant who had been unvested in non-401(k) benefits had been treated as a new hire and was offered the opportunity to defer on an unmatched basis on his date of rehire (and elected 0% deferral). The plan now wants to "correct" for the "improper" exclusion for people rehired after 12/31/2004.

Rev Proc 2003-44 would imply that the rehired employee must be given a contribution equal to the ADP + ACP for their class. Since the plan is a safe harbor, it does not run the ADP / ACP test.

Are the options for correction methodology:

(1) perform the ADP and ACP tests and then credit the employee with both a deferral and match (plus earnings) based on the results;

(2) provide the match only (since he had not been excluded from making deferrals):

2a) calculate the match based on the ACP test results;

2b) calculate the match based on the deferral elected at rehire by the participant (noting that the employee may have elected a different level upon becoming match eligible) but only with IRS blessing through VCP;

(3) some other option

Any suggestions are welcome.