Mistaken or Omitted Participation

[ERISA-Bubs]

We have a nonqualified plan. The plan has the following provisions for mistaken or omitted participation:

If you are participating and Employer determines should should not be, your deferrals will immediately stop.

If you are not participating and Employer determines you should have been, you will receive a special contribution.

Is this allowable under 409A?

[XTitan]

Stopping deferrals due to "mistaken" eligibility is as problematic as stopping deferrals due to a bona fide loss of eligibility (demotion/transfer); there is no 409A provision that allows for a cancellation of deferrals except for disability or unforeseeable emergency. Too many concerns about games-playing opportunties. And, 409A doesn't "care" about top hat considerations. May be able to use the limited cashout provision under §1.409A-3(j)(4)(v) if the amounts are small enough.

As for missing an eligible, as long as the plan allows for special contributions, doesn't seem to be a problem to grant a special contribution, provided a timely distribution election is made.