Sole 401(k) not Red Cup

[cdavis25]

So, a "sole" 401(k) plan hired an employee in 2014. He did not realize his plan's eligibility requirements were no service or age requirement per his AA. The employee became a participant on the hire date. That is what you get for cheap. Anyway, the PS portion with earnings is a costly and easy fix. What about the missed deferral opportunity? There are no other NHCEs and no ADP rate to use. Would you assume zero, assume the same deferral rate as the only HCE, or assume a rate to pass the ADP test? This seemed like an easy SCP; however, I am now leaning toward VCP and maybe even anonymous VCP.

[jpod]

Doesn't the correction methodology for missed deferrals assume that the ADP test, with corrections, has been run? If so, wouldn't correction have to include reducing the owner's elective deferrals down to 0% because the ADP of the eligible NHCEs was 0%? Perhaps in VCP the IRS may be amenable to giving the NHCE QNECs in an amount sufficient to pass ADP, plus earnings.

[BG5150]

What's a Red Cup?

(other than the thing I play beer pong with)

[Mike Preston]

Don't listen to country music much, huh?

[BG5150]

Um, pretty much none.

[My 2 cents]

Don't listen to country music much, huh?

Oh, please, if you know, please pass along the information. Many of us are not country music aficionados.

[BG5150]

I get it now.

[Mike Preston]

2 cents: there was a pretty big country hit within the last year or two (I think) called "Red Solo Cup" (again, I think).

[cdavis25]

"The methods for correcting the failures described in this section .05(2) do not apply until after the correction of other qualification failures. Thus, for example, if, in addition to the failure of excluding an eligible employee, the plan also failed the ADP or ACP test, the correction methods described in section .05(2)(b) through (f) cannot be used until after correction of the ADP or ACP test failures. For purposes of this section .05(2), in order to determine whether the plan passed the ADP or ACP test, the plan may rely on a test performed with respect to those eligible employees who were provided with the opportunity to make elective deferrals or after-tax employee contributions and receive an allocation of employer matching contributions, in accordance with the terms of the plan, and may disregard the employees who were improperly excluded."

It appears in EPCRS that we do not have to re-run the ADP test to include the improperly excluded. So, no NHCEs means free pass on ADP and thus no failure. This is why I am unsure how the IRS would address this. The client could be aggressive and say zero b/c that is the NHCE rate. My thought was anonymous VCP saying a deferral rate equal to what would have been needed to pass the ADP test. To compound the issue, the improperly excluded NHCE for 2014 is a HCE for 2015. i.e. He made over the comp limit for the half year in 2014. I would not call him a NHCE in reality, but he is by definition for 2014.

I guess we could run the ADP test correctly and say it failed. Then, make the QNEC to pass plus earning. However, would that really address the missed deferral opportunity? If you did that, would you consider SCP instead of VCP?

Red Solo cup - Toby Keith...come on