QNEC Correction for improperly-excluded leased employees

[Guest JackPoint]

We have a new client for a 2007 401(k) plan audit. From 2003 when they put their plan into place, through 2006 when a new TPA informed them of their error, this client had more than 20% leased employees but improperly excluded them from plan participation. They amended the plan to exclude all HCE's, allowing them to exclude the leased employees thereafter because they now automatically passed the minimum coverage ratio percentage test. SOMEONE - and so far we haven't uncovered who it was - advised them to make a QNEC on behalf of the excluded leased employees. They were not able to locate or identify all the improperly excluded leased employees, and the PEO's were not cooperative when it came to releasing employee data - preseumably because of HIPAA privacy considerations. I would gladly ignore whether the QNEC was properly calculated or whether it covered who it was supposed to cover as issues presumably resolved prior to our involvement - except that the QNEC was posted as a liability of the plan at 12/31/2006 and was paid in 2007, the year under audit, so I can't ignore it. There is no evidence of any involvement by an ERISA attorney. Can anyone give me guidance on 1) what disclosures, if any, I need to make in regard to this issue, and 2) how IS the corrective QNEC calculated in thse circumstances? I assume it would be at least a safe-harbor percentage centribution for what they could have contributed if made eligible, plus the associated match, plus appropriate earnings, but I have not encountered this situation before and I'm not sure what to do.

Thanks as always for the help -

Jack Point

[K2retire]

The recent EPCRS update details how the QNEC is supposed to be calculated depending on the plan provisions. I believe it is Rev. Proc 2008-50.

[Guest JackPoint]

The recent EPCRS update details how the QNEC is supposed to be calculated depending on the plan provisions. I believe it is Rev. Proc 2008-50.

Perfect. Thanks very much.

JP