EPCRS Correction of Failure to Implement Elective Deferrals AND CATCH-UPs

[401 Chaos]

I fear that I may be overthinking this issue but have not found this expressly discussed on the boards here and would appreciate some guidance from the experts.

Plan discovered that a few participants who had made elective deferrals for the year (including some that had also elected to make catch-up contributions given that their regular elective deferral elections would max out) were not implemented for the plan year.  The participants have now missed several months of deferrals and the employer plans to correct under EPCRS by making QNECs for missed elective deferrals and matching contributions and earnings per Revenue Procedure 2016-51.

Question is whether the missed catch-up contributions can also get corrected / included in the QNEC calculations.  (Here, there is no doubt that the individuals would have qualified for the catch-ups had their deferral elections been properly implemented yet, in actuality, they will now end up with actual elective deferrals not reaching the max for the year.)

I see that the EPCRS has a separate section / correction protocol for missed catch-ups under Appendix A .05(4); however, it appears to be limited to employees excluded from "catch-up contributions only."  The example provided shows that a participant was permitted to make their maximum regular elective deferral  but simply denied the ability to make a catch-up contribution.  Unfortunately, I do not see anywhere else in Rev. Proc. 2016-51 where somebody that was eligible for making maximum regular elective deferrals plus maximum catch-up contributions for the year gets corrected by having a QNEC made on the catch-up portion as well as the regular elective deferral amount.  Perhaps the potential for covering the missed catch-up is generally assumed but the narrow phrasing of the .05(4) section and careful limiting of the QNEC correction there to catch-up only mistakes leaves me thinking otherwise.  Also, when looking at the IRS presentation on Correction Methods for 401(k) Failures linked below (from 2012), page 28 notes:  "If an employee has been excluded from making any deferrals then ordinarily no additional correction with respect to catch-up contributions is required because the deemed elective deferral is below the threshold for being eligible to make a catch-up contribution."  

Just wondering if that should be read to basically mean you never make a QNEC correction for missed catch-up amounts unless they are the only missed deferral amounts?  (I'm all for eliminating windfalls for participants for inadvertent errors but that seems a bit much where you know somebody was on track to max out both regular and catch-up contributions.)

Thanks for any guidance you might provide.

www.irs.gov/file_source/pub/irs-tege/epcrs_401k_phoneforum_presentation.pdf

 

[ETA Consulting LLC]

No, you would just assume the deferral limit for the individual age 50 (or older) is $24,000 and ignore the entire notion of a catchup.   A catchup is, in fact, a deferral.  They simply missed deferrals; and that limit would be $24,000.

The 2nd part (which does not apply) would be if they were allowed to defer to $18,000 and cut off at that amount; when their limit should've been $24,000.  This is, clearly, not the case since they weren't even allowed to defer.

Good Luck!

[401 Chaos]

ETA,

Thanks very much.  This is very helpful.  Are you aware of any EPCRS examples that show a correction assuming the deferral limit is the combined regular plus catch-up amount to provide the plan some documentation of the fix?