exclusion of eligible ee

[Guest Butterfly]

EE says they handed in paperwork to enroll in 2008 (elig. for plan in 2006) and that ER did not submit. Office Mgr. of er says they did not ever receive paperwork. Broker has copy of paperwork submitted in 2008, but doesn't look like it went anwhere from there/did not make it to the ER.

If ER wants to correct (versus do nothing):

If we were to pursue corrections based on "exclusion of eligible ee", & the "lost opportunity cost" to make deferrals, the make-up payment is based on 50% of the pre-tax deferrals the ee would have made which is based on the ee's Comp times the ADP of the EEs class. However, no one else defers into the Plan (only three elig.). The orig. enrollment forms document that the ee wanted to defer 10%.

Since we cant base the calc an ADP% (it would be zero), would we just use the 10% intended deferral %?

[Guest Sieve]

The 50%, I believe, is if the individual simply is overlooked. If there's an enrollment form that was not communicated properly, and that is why there was no deferral, then I would say that you use the deferral percentage that the individual actually elected--especially, as here, where no one is deferring into the plan.

[Kevin C]

The 50% factor also applies for the correction of a failure to implement a deferral election. There is a similar correction method for partial year exclusions.

Rev. Proc. 2008-50, Appendix A .05(5) Failure to implement an employee election. (a) Missed opportunity for elective deferrals. For eligible employees who filed elections to make elective deferrals under the Plan which the Plan Sponsor failed to implement on a timely basis, the Plan Sponsor must make a QNEC to the plan on behalf of the employee to replace the "missed deferral opportunity." The missed deferral opportunity is equal to 50% of the employee's "missed deferral." The missed deferral is determined by multiplying the employee's elected deferral percentage by the employee's compensation. If the employee elected a dollar amount for an elective deferral, the missed deferral would be the specified dollar amount. The employee's missed deferral amount is reduced further to the extent necessary to ensure that the missed deferral does not exceed applicable plan limits, including the annual deferral limit under § 402(g) for the calendar year in which the failure occurred.

[Guest Butterfly]

Thank you for your responses, Kevin C and Sieve. Seems pretty basic and obvious, but I wanted confirmation from the experts!!

Have a good one!

[Santo Gold]

What if this wasn't the case that a deferral request was made but not implemented? That is, what if you had participants who were never given the opportunity to make 401k contributions, and yet the ADP is 0% because no one else in the plan contributed? Would the remedy be $0.00?

Thanks

[Guest Sieve]

Haven't looked specifically to see if EPCRS covers this (frankly, I doubt that it does), but there is a general correction principle in EPCRS that says that any correction must be reasonable & appropriate, and I don't think it would be reasonable & appropriate to rely on the fact that the ADP of others was 0%.