Wrong comp used for deferrals

[Guest So Cal Gal]

Company X forgot to exclude sick pay as allowable comp under a 415 safe harbor comp definition. Now they are trying to correct it back to 2007. Should it be treated as a 402(g) correction or what?

[Guest LHart]

Company X forgot to exclude sick pay as allowable comp under a 415 safe harbor comp definition. Now they are trying to correct it back to 2007. Should it be treated as a 402(g) correction or what?

I would think the plan would retroactively amend the definition of compensation to reflect the compensation that was used in operation, particularly if the error was consistently applied for at least two years . . . perhaps more? The good news is, the employees have socked away more rather than less based on the compensation used, so no harm done. If you can't find a specific instance in EPCRS or VCP for this kind of error ( . . . but surely this is not an uncommon error), the next best thing is to retroactively amend, carefully document your logic, and then work with a definition of compensation that doesn't confuse the employer. By the way, the 402(g) limit is a dollar limit. "Excess Deferrals" as defined in the regs are not applicable in this situation. 402(g) violations occur when an employee exceeds the dollar limit that was in place for the particular tax year.