Do Earnings count against Section 415 Limits?

[ERISA-Bubs]

We are doing a correction for failure to allow an eligible employee to defer. Making up the missed deferral opportunity does not cause any problems, but the earnings in the QNEC would put the employee over the 415 limit, if counted toward the limit. Should we reduce the QNEC to fall under the 415 limit, or does the earnings in the QNEC not count toward the limit?

Thank you!

[BG5150]

How are you getting near 415 with or without earnings? Must've been a pretty big PS made.

[ERISA-Bubs]

We have some highly paid employees who get a good employer contribution based on a flat percentage of their compensation. This, plus the elective deferrals get us close to the 415 limit. If earnings are added, it gets at least one person over the 415 limit, but I'm not sure whether they should count.

[Belgarath]

No, the earnings are not annual additions. Earnings are not considered annual additions under 415, and all you are doing is putting the participant "in the same position" as they would have been but for the error.

[ERISA-Bubs]

Thank you! I did not see this in EPCRS. Did I miss it, or should I be checking 415?

[Kevin C]

You have to consider 415, but maybe not the way you think.

Rev. Proc. 2013-12, Section 6.02(4)(b) A corrective allocation to a participant’s account because of a failure to make a required allocation in a prior limitation year is not considered an annual addition with respect to the participant for the limitation year in which the correction is made, but is considered an annual addition for the limitation year to which the corrective allocation relates. However, the normal rules of § 404, regarding deductions, apply.

[PensionPro]

Don't think earnings can be considered annual additions even if the employer is contributing it.

the term “annual addition” means the sum for any year of—

(A) employer contributions,

(B) the employee contributions, and

© forfeitures.

415(c )(2)