Operational failure corrected by retro amendment for HCEs and corrective contribution for NHCEs?

[t.haley]

401k plan failed to include bonuses in compensation for all contribution purposes (employee deferral and employer matching) for a number of years (employer only has payroll records back to 2006 but suspects that they have never included bonuses since the beginning of the plan in 1978 despite plan language).  Failure was discovered late last year and plan amended prospectively to exclude bonuses.  Employer wants to know if they can retroactively amend the plan to exclude bonuses from compensation for HCEs only (so no corrective contribution) but make a corrective contribution for NHCEs only to include bonuses in compensation for deferral and matching purposes.  Anyone have experience with submission of a correction like this in VCP?  My thinking is that the IRS would probably approve it since you are benefiting the NHCEs.  Thoughts?

[Belgarath]

Your thoughts are certainly reasonable, but I'm inclined to think the IRS might view it differently. If employer matching contributions were made, then the HCE's have lost certain amounts. If they are inconsequential, why not just give it to them as part of the correction? If the amounts are substantial, then that may push it in the direction of the IRS not accepting this correction.

But to answer your other question, I haven't had a situation quite like this, so maybe someone else has, and can give you a different and better answer.