Missed deferrals - do they go into ADP test?

[AKconsult]

Client has an employee for whom they did not withhold 401(k) from a bonus check at year-end. Client is going to fund the missed deferral, plus match, plus earnings, for the employee. However, how does this impact ADP/ACP testing? The missed deferral is going to be funded as a QNEC.

IRS site generally states: "..the plan must evaluate whether, in the event that the employee had made the missed deferral, it would still pass the applicable ADP test. The ADP test should be corrected according to the plan's terms before implementing any corrective contribution on behalf of the employee. In addition the missed deferral amount should be reduced to ensure the employees elective deferrals (the sum of deferrals made and the missed deferrals) comply with all plan and legal limits."

So I think this is saying that we must rerun the ADP test assuming the deferral is in it, and then determine the amount of the QNEC? I guess I don't understand why the IRS has the employer deposit it as a QNEC if it is going to go into test?

Thanks!

[Tom Poje]

a corrective contribution for a missed deferral is still a QNEC and not a 'deferral' - so the W-2 doesn't change indicating an increase in deferral, and for tax purposes the person doesn't get a reduced tax either.

but QNEC are commonly used in the ADP test, so I'm not sure why you wouldn't include it in the test in a case like this.

[Mike Preston]

Doesn't it basically say that if the missed deferral is with respect to an HCE you look to the plan to see whether the corrective contribution is modified (lowered?)?

[SavingsRUS]

Is it possible that section .05(5)(d) of Appendix A to Revenue Procedure 2013-12 can be applied so that the plan may rely on the ADP test performed with respect to those employees who were not impacted by the failure to implement the bonus deferral election, and may disregard employees whose elections were not properly implemented?