skipped as opposed to missed deferrals

[pmacduff]

employer has mulitple locations, which have independent payrolls. Participant transfers from one location to another. New location neglects to enter participant's deferral election into payroll resulting in approx. 3 months of "missed deferrals".

since we know the participant's exact missed contribution amount, would you agree that one method of self-correction might be for the employer to make the QNEC contribution based on what the participant's contributions would have been for that period, along with the corresponding employer match?

I've been looking over the self-correction info and they address a participant not given the opportunity to defer but not specifically failure to follow the participant's election.

Also wondering since we are in the same plan year with 4.5 months left in the year - can the participant be offered the opportunity to increase contributions for those that were missed?

any thoughts appreciated.

[duckthing]

Yes, for some reason (post count too low?) I can neither insert a link nor paste the address in, but the IRS has a page for "New Methods for Correcting Elective Deferral Errors". It includes a link to Rev Proc 2015-28 with the details. If you fall under the "early correction" criteria the correction would be a QNEC for 25% of the missed amount -- which, as you said, is easy to determine. Matching contributions with lost earnings are also due, and an end-of-year discretionary matching contribution, if any, would be calculated based on the deferrals they would have made had their election been followed correctly.

Participant notice is also required, and the rev proc specifically addresses your question about participants having the option to increase deferrals; specifically, the notice must include language saying exactly that.

[Edited: Sorry, for some reason I thought there was a model notice available as well. I must have imagined it. That's why I try not to rely on my memory!]

[GMK]

To paste, etc., you need to click the switch in the upper left corner of the header of the Reply window. This fuzzes out all the headers and allows you to paste.

Then, click the switch again to bring all the editing functions back to life.

[pmacduff]

thank you duckthing, this is exactly what I needed! Information that needs to be in the notice is included in the rev proc.

It would be nice to have a model notice, though, so if you have a chance to link that I would greatly appreciate it!

[Kevin C]

I've been looking over the self-correction info and they address a participant not given the opportunity to defer but not specifically failure to follow the participant's election.

Is this what you are looking for?

Rev. Proc. 2013-12, Appendix A .05(5) Failure to implement an employee election. (a) Missed opportunity for elective deferrals. For eligible employees who filed elections to make elective deferrals under the Plan which the Plan Sponsor failed to implement on a timely basis, the Plan Sponsor must make a QNEC to the plan on behalf of the employee to replace the “missed deferral opportunity.” The missed deferral opportunity is equal to 50% of the employee’s “missed deferral.” The missed deferral is determined by multiplying the employee’s elected deferral percentage by the employee’s compensation. If the employee elected a dollar amount for an elective deferral, the missed deferral would be the specified dollar amount. The employee’s missed deferral amount is reduced further to the extent necessary to ensure that the missed deferral does not exceed applicable plan limits, including the annual deferral limit under § 402(g) for the calendar year in which the failure occurred. The QNEC must be adjusted for Earnings to the date the corrective QNEC is made on behalf of the affected employee.

(b) Missed opportunity for after-tax employee contributions. For eligible employees who filed elections to make after-tax employee contributions under the Plan which the Plan Sponsor failed to implement on a timely basis, the Plan Sponsor must make a QNEC to the plan on behalf of the employee to replace the employee’s missed opportunity for after-tax employee contributions. The missed opportunity for making after-tax employee contributions is equal to 40% of the employee’s “missed after-tax contributions.” The missed after-tax employee contribution is determined by multiplying the employee’s elected after-tax employee contribution percentage by the employee’s compensation. The QNEC must be adjusted for Earnings to the date the corrective QNEC is made on behalf of the affected employee.

[pmacduff]

Thank you Kevin - Some of Rev Proc 2013-12 was updated in Rev Proc 2015-28, which had exactly what I needed.

In addition, though, I was looking for a model notice to the participant if one was available. Rev Proc 2015-28 specifies what information must to be in the participant notice so one can certainly be created from that information if necessary.

[duckthing]

Sorry, this is what I get for trusting my memory. I don't see a model notice, but the rev proc does specify what needs to be included.

© Content of notice requirement. The notice required under section .05(8)(a)(ii) of this Appendix A must include the following information:

(i) General information relating to the failure, such as the percentage of eligible compensation that should have been deferred and the approximate date that the compensation should have begun to be deferred. The general information need not include a statement of the dollar amounts that should have been deferred.

(ii) A statement that appropriate amounts have begun to be deducted from compensation and contributed to the plan (or that appropriate deductions and contributions will begin shortly).

(iii) A statement that corrective contributions relating to missed matching contributions have been made (or that corrective contributions will be made). Information relating to the date and the amount of corrective contributions need not be provided.

(iv) An explanation that the affected participant may increase his or her deferral percentage in order to make up for the missed deferral opportunity, subject to applicable limits under section 402(g).

(v) The name of the plan and plan contact information (including name, street address, e-mail address, and telephone number of a plan contact).

[K-t-F]

So.. to summarize and put it very simple... the correction is that the plan sponsor must calculate what the missed deferral amount was, determine what 50% will be and pay it into the plan for that specific participant. Earnings must also be added. In addition a notice must be made to explain what happened.

[BG5150]

So.. to summarize and put it very simple... the correction is that the plan sponsor must calculate what the missed deferral amount was, determine what 50% will be and pay it into the plan for that specific participant. Earnings must also be added. In addition a notice must be made to explain what happened.

Rev proc 2015-28 change that to 25% if after 3 months. No QNEC needed if within 3 months.

.03 Description of modifications to encourage the early correction of Employee Elective Deferral Failures.

(1) Safe harbor correction method for Employee Elective Deferral Failures that do not exceed three months. This safe harbor correction method creates a rolling correction period for Employee Elective Deferral Failures that do not exceed three months. Under this safe harbor, no QNEC for the missed elective deferrals is required provided that the following conditions are satisfied:

(a) correct deferrals begin no later than the earlier of (i) the first payment of compensation made on or after the three-month period that begins when the failure first occurred for the affected eligible employee or (ii) if the Plan Sponsor was notified of the failure by the affected eligible employee, the first payment of compensation made on or after the last day of the month after the month of notification;

(b) notice of the failure that satisfies specified requirements in new section .05(9)© of Appendix A of Rev. Proc. 2013-12 is given to the affected eligible employee not later than 45 days after the date on which correct deferrals begin; and

© corrective contributions to make up for any missed matching contributions are made in accordance with timing requirements under SCP for significant operational failures (described in section 9.02 of Rev. Proc. 2013-12) and are adjusted for Earnings. See section 9.04 of Rev. Proc. 2013-12.

(2) Safe harbor correction method for Employee Elective Deferral Failures that extend beyond three months but do not extend beyond the SCP correction period for significant failures. This revenue procedure creates a safe harbor correction method for Employee Elective Deferral Failures if the period of failure exceeds three months (or the conditions for the safe harbor correction method described in section 3.02 or 3.03(1) are not met by the Plan Sponsor). This safe harbor correction would permit the Plan Sponsor to make a corrective contribution equal to 25% of the missed deferrals (25% QNEC) in lieu of the higher QNEC required in sections .05(2)(b) and .05(5)(a) of Appendix A and section .02(1)(B) of Appendix B to Rev. Proc. 2013-12. In order to use this safe harbor correction, the Plan Sponsor must satisfy the following conditions:

5

(a) correct deferrals begin no later than the earlier of (i) the first payment of compensation made on or after the last day of the second plan year following the plan year in which the failure occurred or (ii) if the Plan Sponsor was notified of the failure by the affected eligible employee, the first payment of compensation made on or after the last day of the month after the month of notification;

(b) notice of the failure that satisfies specified requirements in new section .05(9)© of Appendix A of Rev. Proc. 2013-12 is given to the affected eligible employee not later than 45 days after the date on which correct deferrals begin; and

© corrective contributions (including the 25% QNEC and employer contributions to make up for any missed matching contributions) are made in accordance with timing requirements under SCP for significant operational failures (described in section 9.02 of Rev. Proc. 2013-12) and are adjusted for Earnings. See section 9.04 of Rev. Proc. 2013-12.

[K-t-F]

Perfect, thank you!