Missed Deferral Opportunity?

[12AX7]

401 (k) Safe Harbor Match Plan. Employer fails to defer on the the last payroll of the year which only has bonus wages. Plan has no compensation exlcusions.

Would therefore this section of self-correction under EPCRS be permissable for a Safe Harbor Match?

(F) Special Rule for Brief Exclusion from Elective Deferrals and After-Tax Employee Contributions. An Plan Sponsor is not required to make a corrective contribution with respect to elective deferrals (including designated Roth contributions) or after-tax employee contributions, as provided in sections 2.02(1)(a)(ii)(B) and ©, but is required to make a corrective contribution with respect to any matching contributions, as provided in section 2.02(1)(a)(ii)(D), for an employee for a plan year if the employee has been provided the opportunity to make elective deferrals or after-tax employee contributions under the plan for a period of at least the last 9 months in that plan year and during that period the employee had the opportunity to make elective deferrals or after-tax employee contributions in an amount not less than the maximum amount that would have been permitted if no failure had occurred. (See Examples 6 and 7.)

There seems to be no distinction between Traditional and Safe Harbor plans in the referenced section. Am I also reading the correction properly that it would make no difference when the failure to withhold deferrals took place provided that the participant had an opportunity to defer no less than the maximum amount in the last 9 months of the year. Would the participant have to be notified of the failure to use the special rule?

That's the way I'm reading this section, if I'm not reading too narrowly into the descripton. Thanks.

[ETA Consulting LLC]

No. The emphasis is on the 9 months; providing a significant opportunity for each individual to increase their deferral amounts prior to the end of the year. This does not save the employer from making up the match that would've been provided. It saves them from having to make up for the missed deferrals, because 9 months is considered long enough for each employee to catch themselves up.

Good Luck!

[12AX7]

So the failure needs to occur more or less by March 31 and the participant is notified of the failure to decide about making up the difference in the last 9 months. In the real world it doesn't always work so cleanly, because the employer doesn't know that the failure has occurred and I don't catch these errors until after the plan year ends.

Thanks.

[ETA Consulting LLC]

Correct, so they won't qualify for a "brief exclusion" exception. I think the 9 months is poorly written because it does just that; says the correction is only for deferrals missed by March 31st. However, I would argue the ratio 9:3. If you have 3 times the amount of time that the deferrals were missed, and this would be ample opportunity for the individual to adjust the deferral in order to contribute the maximum level allowed under the plan; then that should be equally acceptable. Suppose you're in September and you missed deferrals on a two-week payroll. There is an argument that 3 remaining months is more than enough time needed for each employee to adjust their deferral rates to make up for that missed two-week period; heck thats 12:2 (much better than 9:3).

There is a compelling argument that this would effectively qualify for a brief exclusion exception; even though obvious argument to the contrary is that it's not reflected in EPCRS.

Good Luck!

[12AX7]

I don't believe the intention of that section of EPCRS is to create timeframe ratios. I'll stick with the 9 months and leave it to you to submit comment to IRS for the next go around on EPCRS. Thanks and talk to you later.

[ETA Consulting LLC]

The intention is to provide a correction mechanism to "make the employees whole", but that one section falls short on identifying a "brief exclusion".

The section references "plan year" while 401(a)(30) and customary tax planning is done on a calendar year basis. Suppose the "plan year" begins on October 1st. Under the IRS's procedure, the participants now have January 1st - September 30th to make up additional contributions. The problem is that this 9 month period is in a new tax year of the participant and does nothing to make up the fact that they were screwed in the previous tax year.

Good Luck!