EPCRS Correction

[Guest richard-k]

I cannot find the correction procedure under the new EPCRS rules for the following situation.

1. The plan document excludes shareholder doctors from a 401k plan. All other eligible employees can make deferrals, including catch-up contributions. There is no match.

2. Several of the shareholder doctors (over age 50) made "catch-up contribuitons" (or what they thought were catch-up contributions) of $5,500 in 2011 and 2012.

I see the EPCRS correction where a 401k plan excludes individuals who should have been included. However, I don't see the EPCRS correction where a 401k plan includes individuals (in particular, HCEs) who should have been excluded.

Amending the plan retroactively to include them might be problematic to the client. There is another plan that covers these shareholder doctors. That would make both plans in the same required aggregation group, and require additional top heavy contributions to the 401k plan. (The 401k plan eligibiility is more generous that the profit sharing plan's eligibility.)

Alternatively, correcting the 401k plan by refunding the money (taxable) to the doctors will annoy the doctors somewhat, but not too bad.

But, I cannot determine what the correct fix it. Any ideas.