Self-Correction

[Belgarath]

I haven't happened to run into this before, and wondered if others had, or if not, what your interpretation might be.

Employer improperly excluded a couple of participants from making deferrals. No problem fixing that. Question is, how you interpret Revenue Procedure 2013-12, Appendix A, .05(4). I would interpret this to be that the correction for an age 50+ employee who was excluded does not mean that you give them the "catch-up" correction IN ADDITION TO the "normal" correction. Rather the catch-up correction is only for someone who actually deferred, but was improperly prevented from utilizing the catch-up. The only example in Appendix B that addresses this talks about someone who deferred but was improperly excluded from utilizing the catch-up.

Thoughts?

[ETA Consulting LLC]

At what level would the individual's deferrals would've been classified as catch-up. If the deferral is missed, then I would calculate under the prescribe formula. When their limit is reached (including catch-up), then the contributions would cease. A missed contribution is a missed contribution, catch-up or not. If the missed percentage would enough to place the individual into the catch-up category, then it is still consistent with the correction formula. I cannot imagine a 50+ year old saying 'I want to defer x percent of my salary, but I don't want any catchup'. The percentage is the driver; no need to change it.

Now, if that same person made an election to defer x percent, and you cut them off at $17,000 instead of continuing to $22,500 (because you thought they had to actually turn 50 prior to catchup instead of merely turning age 50 during the year; 12/31/2012), then you would have to correct for not allowing them to defer their catchup.

Good Luck!

[Belgarath]

ETK - thanks for the response, but I'm not entirely sure what you are saying. Let's suppose the participant made $50,000, and the ADP for his group is 6.5%. So 6.5% x 50,000 = 3,250, and the "missed deferral oportunity" correction is therefore 50% of that, or $1,625.00. Barring any other limitation in the plan, there's no way you are anywhere near a catch-up situation. So my reading is that there is no "correction" for a missed catch-up in this situation.

I kind of think you are agreeing, but I wasn't certain?

[ETA Consulting LLC]

Yes. When performing a correction for missed contributions, catch-up seldom (if ever) comes into play merely because the percentages are low. Hence, you're safe in merely applying the percentages (as you just did). If, for any reason, the $1,625 would've created catch-up for that individual, then you'd proceed with the $1,625 because the percentage (as you calculated) is the driver. Catch-up merely increases the individual's deferral limit (even though there is a universal availability requirement when offered).

I agree with your method.

Good Luck!