EPCRS Question

[kevind2010]

One of our clients discovered a completed employee deferral election for an employee that was filled out way back in 2002. Somehow this was over looked by both the plan sponsor and employee and money has never been withheld from the employee's paycheck. I understand the calculation of the QNEC in order to fix this error, but my question is does anyone know whether this can this be fixed via self correction (SCP) or must they file through the VCP since this dates back more than 2 years? Thank you for any insight!

[jpod]

I don't know the answer, but just for "laughs" what is the total of QNECs plus the earnings component?

This kind of ridiculous windfall demonstrates a serious deficiency with EPCRS.

[Kevin C]

If it only involved one person, there were no other failures and the amounts would be a small percentage of the plan's assets, it would probably be an insignificant failure correctable under SCP. I say "probably" because it is a judgment call on whether the failure is insignificant.

Here is a prior discussion on insignificant vs significant.

http://benefitslink.com/boards/index.php?showtopic=47539

[QNPG]

One of our clients discovered a completed employee deferral election for an employee that was filled out way back in 2002. Somehow this was over looked by both the plan sponsor and employee and money has never been withheld from the employee's paycheck. I understand the calculation of the QNEC in order to fix this error, but my question is does anyone know whether this can this be fixed via self correction (SCP) or must they file through the VCP since this dates back more than 2 years? Thank you for any insight!

See Part IV, Section 8 and Section 9 of Rev. Proc. 2008-50. There are several factors listed there to determine whether the error was insig or sig. If it was significant, it has to be corrected (or at least substantially corrected) by the end of the "correction period". Correction period is defined in Section 9.

Hope this helps!

[12AX7]

It's amazing that the employee was not aware of the missing deductions. There should be some type of rule in EPCRS where if the employee does not discover or document that a deferral is missing after a number of years, the employer is not responsible for the total correction provided that this type of error is isolated. For example the employer would only have to correct X number of current and prior years.

I would imagine the IRS would not want any part of this, but at some point the employee has to accept some responsibility for not taking an active interest in their plan participation. A controversial idea to say to the least.

[kevind2010]

Thank you all for the input and insight. Very helpful! I agree, that it is a little bit silly for the employer to now have to correct nearly a decade worth of missed deferrals if the employee had not noticed it all that time.

jpod - the QNEC is a little under $11k not having adjusted for earnings yet!