safe harbor 3% nonelective

[Guest Moira]

I am taking over a plan 10/1 that was not managed with a professional recordkeeping system. The trustee kept all the individual participants in segregated accounts and says "the employer (law firm) was responsible for compliance testing".

In creating the recordkeeping back to 1/1/04 (when the profit sharing plan added the 401k and safe harbor features) I discovered that the employer had incorrectly been taking away all employer contributions made on behalf of an employee who terminated before the end of the plan year. Of course, the safe harbor 3% nonelective cannot be subject to a last day rule, so a terminating employee was entitled to the 3% nonelective year-to-date up to termination. Unfortunately, I'm discovering this not only effects 2006 (my initial thought) but evidently there were 2 employees who terminated in 2004 to whom the employer did not pay the 3% safe harbor contribution.

Opening up a can of worms here. Where do we start to fix this? I know these employees have to get these contributions. Other issues? 2004 Form 5500 is wrong (?) 2005 hasn't been filed just yet, it's on extension. I assume I'm looking at venturing into the EPCRS?

Thanks.