Ineligible deferrals, not corrected

[emmetttrudy]

A Plan allows two participants into the Plan early. Both participants (HCEs) contribute employee deferrals. The employer refuses to correct the error. Is this a prohibited transaction? Would they need to check Yes on the Form 5500 that the plan had a PT during the year?

[12AX7]

The plan has eligibility provisions. Therefore, the employer allowed two employees to defer before they satisfied the eligibility provisions, not the plan .

Most effective way to correct the operational error is to have the employer amend the plan allowing the two employees early entry, provided they are not both HCEs. Take a look at EPCRS.

[ETA Consulting LLC]

Agreed, but your issue is compounded by the fact they are HCEs. Benefits, rights, and features must be currently (plan provision) and effectively (actual operation) available on a non-discriminatory basis. Allowing 2 HCEs: 1) Early Entry and 2) outside of the plan's written terms appears to be an eggregious violation of these standards.

Good Luck!

[BG5150]

Advice: put all your questions, comments and concerns as to the issue in writing to the client so you don't get that "you never told us this" phone call when the DoL noses around.

[emmetttrudy]

Thanks. We have already spelled everything out in a letter to the client. The aim of my original question (is this a PT?) is because I am trying to figure out if we need to mark "Yes" on the Form 5500 that the plan experienced a PT during the year.

[Belgarath]

I don't think it is a PT. Operational error, potential disqualifying event, etc., but I don't see it as a PT.

Isn't it mystifying how employers pay for plan administration, then refuse to do what you tell them?

[emmetttrudy]

@ Belgarath. Agreed, amazing. I guess they know better than we do!