missed deferrals on Christmas bonus

[mariemonroe]

Employer fails to withhold salary deferrals on 2016 Christmas bonuses.

Client discovers error in 2017.

Can client use the correction method set forth in Appendix A, Section .05(9)(b) (Safe harbor correction method for Employee Elective Deferral Failures that extend beyond three months but do not extent beyond the SCP correction period for significant failures)?

The following 3 conditions must be met to use this method (which requires an employer contribution = 25% of the missed deferrals, adjusted for earnings)

1. corrective deferrals begin no later than the earlier of 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.

2. Notice of the failure is given the affected participants not later than 45 days after the correct deferrals begin.

3. Corrective allocations are made in accordance with the timing requirements under SCP for significant operational failures.

I believe we meet requirements #1 & #3.

I am hung up on #2.

Deferrals since the first payroll after the Christmas bonus have been correct.

However, more than 45 days have passed since the date “corrective deferrals” began and no notice has been provided because we did not know about the missing deferrals until recently.

It seems like we should qualify for this safe harbor treatment but I don’t think we can meet the notice requirement.

Am I misinterpreting the requirements of this safe harbor?

[K2retire]

I agree, that you cannot meet the notice requirement now. That requirement is often what prevents using the reduced correction.

[Mike Preston]

See my post in another thread.