Missed Deferral Opp Fixes

[Rai401k]

1. A participant didn’t have deferrals deducted from a commission paycheck in March 2013 (commissions are part of the definition of comp). However, if he did he would have exceeded the deferral limit. He wound up contributing $17,500. Does he still get the 50% QNEC and earnings for it?

2. Another participant had a couple of pay periods that deferrals weren’t deducted in 2013. However, if she did she would have exceeded the deferral limit. $1,444.48 should have been deducted, but that would put her $658.01 over the deferral limit. Does she get the 50% QNEC and missed earnings for the entire missed deferral or just the amount that would bring her to the limit?

[John Feldt ERPA CPC QPA]

Check the plan document first. Some have administrative provisions that say something like "regardless of the plan's definition of compensation, the plan aministrator can establish a uniform and nondiscriminatory policy regarding which types of irregular compensation employees can defer from."

For the participant in item #1, maybe you could consider a correction that simply looks at the dates the deferrals should have been withheld and just add missed earnings (since the full deferral actually did get into the plan)?

For participant #2, you have some missed deferrals that would not have exceeded the deferral limit, so the 50% QNEC certainly applies there, and perhaps the missed earnings concept could be considered for the remaining portion.

Neither if the above ideas are strictly spelled out in Rev. Proc. 2013-12, so a self-correction could have some risk, but it seems reasonable to me.

[MWeddell]

The EPCRS does specficically permit you to not make corrective QNECs to the extent the participant's deferrals reached the 402(g) limit.

[John Feldt ERPA CPC QPA]

Correct, that is in Appendix A.05(5) (page 83 of my version). Are you suggesting there are no missed earnings then for not withholding when the wages were paid (especially for participant #1 above)?

[MWeddell]

I believe that no missed earnings need to be restored to participant #1. The guidance states that the corrective QNEC must be adjusted for earnings, but when there is no corrective QNEC, there are no adjusted earnings. Yes, this is a different result than if we went back to the general principal of putting the plan and the participant in the position they would have been in had there been no operational faitlure, but the corrective actions such as that in the Appendix A provision you cited are deemed to be satisfactory.

[John Feldt ERPA CPC QPA]

Fair enough

[Guest A_Dude]

No correction needed because the participant has maximized their deferrals. If they had not, then there would be a case. But the participant also had plenty of time to make up for the missed deferral on that amount of comp.