deferral from bonus - plan doc operational failure

[doombuggy]

OK, it looks like I have a plan sponsor that thought their document didn't allow deferrals off a bonus, when the plan document (both the current PPA, prior EGTRA by us and the EGTRRA from Ascensus, their prior tpa/RK) says that there is no special election on the deferrals off bonus.  The current PPA allows for a separate election if the participant chooses.

I don't know how far back this misunderstanding of the document goes.  How do you correct this kind of operational failure?  I don't know the specifics of bonus, as the client doesn't report that separately to us.  The HCEs at least for last year was the owner and his 2 children.  None of them made more than $265k.  The owner has the highest comp and it was below $150k.

 

Thoughts?

[MoJo]

We deal with this far too often....  Two ways:  It's a missed opportunity and a contribution needs to be made (with earnings, match, etc.) under the EPCRS rules.  It's a document "scrivner's error (something the IRS really doesn't recognize, but...) and you do a VCP seeking permission to retroactively amend the plan the way it should have been (no deferrals on bonues).  It would help if there was paper trail to indicate that was their intent (and the fact that it goes back several restatements does NOT help), and if it only impacts HCE's it''s easier, but it's still a crap shoot.