Correction for Missed Match

[Guest Pension Girl]

There appears to be a difference between correcting for a missed match when it is due to 1. excluding an employee whereby there is then a missed opportunity to defer and receive the match versus 2. a payroll glitch where suddenly matching contributions are not submitted on behalf of an employee who is deferring at a known rate, such that match is missed for say 6 months. It appears that the way to correct for situation 1 above is covered in EPCRS Rev Proc 2008-50, however a missed match when there has been opportunity to defer is not really discussed in EPCRS. If I am reading the Rev Proc correctly, Appendix B states a method for correcting matching contribution failures when the employee is precluded from deferring. In this correction, it appears you base the corrective contribution on the ADP % for the employee's group and then calculate the match based on the formula in the plan by using the ADP %. However, you would only correct after the ADP and ACP tests had been performed and passed, and the amount of match for an HCE could only be up to the ACP cap for that group. This way you do not have to re-run the ACP test. Is this correct?

On the other hand for a missed match under situation 2 above, when it comes time to submit the missed match, you know what is due the participant, and once submitted I assume you would re-run the ACP test, because you are submitting a missed match late and want to make put all the participants in the same position they would have been in had the match been made timely and included in the original ACP test. So it seems that situation 1 is easier to correct because you do not have to re-run the ACP test, could you apply this same correction for a missed match under situation 2?

[K2retire]

Your situation 2 appears to be saying that the match was not deposited according to the formula in effect for a particular participant. Wouldn't the correction be to deposit it now, possibly adjusted for lost earnings?

[Guest Pension Girl]

Yes we are wanting to contribute the missed match now plus lost earnings. However it is beyond 12 months following the end of the plan year, so when the ACP test is re-run and if it fails, I assume it is too late for refunds and so the one to one correction method or QNEC's will be needed. My confusion is that with situation 1 where an employee is missed entirely, it appears that the ACP test does not need to be re-run, so it is much easier to fix it.

[Tom Poje]

for purposes of the ACP test

1.401(m)-2(a)(4)(iii)© says matching contribution is actually paid to the trust no later than the end of the 12 month period immediately followining the year that contains that date.

it doesn't sound like the make up match was actually deposited within 12 months, so I think that says you don't include them in the ACP test.

[Guest Pension Girl]

Then do they become nonelective contributions subject to 401(a) (4) testing - we do not want this, as the employee in question is an HCE and the plan does not have nonelective contributions, so 401(a)(4) testing will fail!!! I think the only sensible correction is to treat them as missed match, but per TAG data to do so means you must run the ACP test. I am referring to situation 2, where the employer failed to remit the contributions timely. Thanks.

[Tom Poje]

I don't know.

I guess the question would be one of "Why is this 12 month rules in the regs? "- in other words, under what conditions would a match ever be deposited after 12 months that wouldn't be a make-up match? I've never heard of a situation in which an employer in the year 2010 would decide to make a match for the 2008 plan year. And remember the same rule applies to a deferral- if it wasn't deposited until 12 months after the fact - and I think you would have to agree a deferral deposited that late would certainly be a make up deferral, so why would the logic be different for matches?

but if treated as a non-elective contribution, then as you indicated, if it only applies to HCE you might fail the a(4) test. But since you would be after the 9 1/2 month deadline for correcting the problem, then you would have to fix using VCP, which I wouldn't think is the intent of the regulation.

well, I'm sure someone wiser than me knows the answer.

[Kevin C]

There are a couple of things in Rev. Proc 2008-50 that might help.

Appendix B, Section 2.02(1)(ii)(B) Elective Deferral Failures. ( 1) The appropriate QNEC for the failure to allow an employee to elect and make elective deferrals (including designated Roth contributions) for a portion of the plan year is equal to the missed deferral opportunity which is an amount equal to 50% of the employee's missed deferral. The employee's missed deferral is determined by multiplying the ADP of the employee's group (either highly or nonhighly compensated), determined prior to correction under this section 2.02(1)(a)(ii), by the employee's plan compensation for the portion of the year during which the employee was improperly excluded. In a safe harbor § 401(k) plan, the employee's missed deferral is determined by multiplying 3% (or, if greater, whatever percentage of the participant's compensation which, if contributed as an elective deferral, would have been matched at a rate of 100% or more) by the employee's plan compensation for the portion of the year during which the employee was improperly excluded. The missed deferral for the portion of the plan year during which the employee was improperly excluded from being eligible to make elective deferrals is reduced to the extent that (i) the sum of the missed deferral (as determined in the preceding two sentences of this paragraph) and any elective deferrals actually made by the employee for that year would exceed (ii) the maximum elective deferrals permitted under the plan for the employee for that plan year (including the § 402(g) limit). The corrective contribution is adjusted for earnings. For purposes of correcting other failures under this revenue procedure (including determination of any required matching contribution) after correction has occurred under this section 2.02(1)(a)(ii)(B), the employee is treated as having made pre-tax elective deferrals equal to the employee's missed deferral for the portion of the year during which the employee was improperly excluded. (See Examples 4 and 5.)

Section 6.02(2)(d) The correction method should not violate another applicable specific requirement of § 401(a) or § 403(b) (for example, § 401(a)(4), § 411(d)(6), or § 403(b)(12), as applicable), § 408(k) for SEPs, or § 408(p) for SIMPLE IRA Plans, or a parallel requirement in Part 2 of Subtitle B of Title I of ERISA (for plans that are subject to Part 2 of Subtitle B of Title I of ERISA). If an additional failure is nevertheless created as a result of the use of a correction method in this revenue procedure, then that failure also must be corrected in conjunction with the use of that correction method and in accordance with the requirements of this revenue procedure.

Looking first at the ADP test, I think this says that if the deferral correction causes an ADP test failure after you include the missed deferral in the ADP test, then you have to do a correction for the failed ADP test. I think a reasonable interpretation is that the same would apply to the ACP test if you are correcting matching contributions.