Rev. Proc. 2015-28 Notice Timing

[EBECatty]

We have a plan that improperly calculated participant entry dates for a small subset of employees. The miscalculation essentially pushed back each participant's entry date from the correct date until the next entry date six months later. For example, participants eligible on January 1, 2014, were not enrolled until July 1, 2014. The error was just recently discovered.

I'd like to use the reduced 25% QNEC under Rev. Proc. 2015-28 because we're still within the "greater than three months but less than two years" period for many of the affected employees. However, the safe harbor requirements include notifying the affected participants "not later than 45 days after the date on which correct deferrals begin."

Read literally, if the normal plan entry process started "correct deferrals" on, say, July 1, 2014, we would have had to notify the participant within 45 days after their plan entry date, which we obviously cannot do (and couldn't have done).

Interested to hear thoughts on whether we should still aim for a 25% QNEC and give notice within 45 days of discovering/correcting the error? I get that the reduced QNEC is supposed to provide an incentive to self-correct errors early, but we're still within the eligibility window, we just didn't realize at the time of plan entry it was a "correction."

[panther]

It would seem that an employer could do the 25% QNEC if the notice could go out within 45 days after making the corrective contribution but that is not the case.  The Rev. Proc. says the correction involves 3 steps: (1) begin correct deferrals, (2) send a notice within 45 days thereafter and (3) make corrective contributions within 2 years.  The notice is tied to when the correct deferrals start, not when the corrective contributions are made.  So the IRS has boxed out employers who started correct deferrals and may not have been aware that doing so started the 45-day notice clock for prior mistakes (of which the employer may not even be aware).  It makes no sense to say you get the 25% QNEC if you did nothing before correction and the 50% QNEC if you started correct deferrals more than 45 days before correcting.  But it is what it is.