Failure to Enoll Employee - help with corrective contribution, please

[Guest MikeD]

Help. I have run into a problem that I have never had before.

I have a plan that improperly excluded employees from the plan. We are needing to make corrective contributions. I know that, typically, you use 1/2 of the ADP for th class the employee would have been in. However, we have 2 issues:

1) There are years in which there were no 401k contributions made (it's a very small plan). Given that there is a 0% ADP for those years, what do you do?

2) There are employees whose class has no deferrals (i.e., there are no NHCE deferrals for a given year). We could use the HCE ADP in these cases. Is there any other way to handle this?

Thank you! Hopefully one of you guys/ladies has run into this one before.

[Jim Chad]

I will start this discussion with the idea of using the 3% assumption used for first year plans. Anyone else have any ideas?

[Guest MikeD]

I will start this discussion with the idea of using the 3% assumption used for first year plans. Anyone else have any ideas?

That's where I have gone with this also. In one of the years, there were HCE deferrals in excess of 3%, so we have used that amount for NHCEs.

[Kevin C]

Another option is to use the correction method for safe harbor plans from Appendix A .05(d). With a SH match plan, the missed deferral is the greater of 3% of comp or the highest level of deferrals that is matched at 100% or higher. With a 3% SH plan, it's 3% of comp.