QNEC Provisions

[Guest Sabadee!]

I have a 401(k) document that lacks QNEC provisions and yet they are in the position of having to make QNEC for leaving out a participant. Is this going to be an issue down the road?

[J Simmons]

I think you have a problem. QNECs are a method for curing initial ADP testing failure. There are other methods. Your plan doesn't specify that QNECs are a method you can use. Plan fiduciaries are required to apply the plan as written, to the extent consistent with ERISA. ERISA does not require that a plan allow for QNECs; it's permissible but not required. How would you allocate the QNEC? The plan document doesn't specify.

If anything, you may need to be proceeding under EPCRS (Rev Proc 2006-27) anyway, and that might allow you to make the contribution needed for the overlooked participant.

[Guest Sieve]

EPCRS does, indeed, permit amending a Plan to correct under VCP, or at least permits you to correct for leaving out a participant. See Rev. Proc. 2006-27, specifically Section 4.05 and Appendix A (.05). (Beware: the IRS is issuing a new EPCRS before fall.)