Ineligible Participant Allowed to Defer

[kshaw]

A client maintains a non-safe harbor 401(k) for non-union employees and contributes to an MEP for collective bargaining unit members. In 2015, one of the union members stopped paying dues, even though he remained covered by the collective bargaining unit. As a result, (1) the employer stopped MEP contributions, and (2) the erroneously allowed the ineligible employee to begin deferring and receiving match under the 401(k) plan. The employee has satisfied the matching contribution vesting requirements.

The plan has over 350 participants, and this is the only participant affected by the error. The participant has an account balance of around $12,000 and total plan assets are around $9M.

QUESTIONS:

Is this eligible for self-correction as an insignificant operational error? Can it be considered insignificant even if we have to issue corrected 1099s for 2015, 2016 AND 2017?

Are there any correction methods available in this case OTHER THAN returning contributions and issuing 1099-Rs?

 

Thanks in advance for your thoughts.

[Mike Preston]

I think you need to check with labor counsel.  I'd want to be darn sure it was, in fact, an error.  If this individual is represented by the union then the fact that dues weren't paid wouldn't matter, would it?

[kshaw]

Labor counsel has confirmed that he should have been considered collectively bargained. He definitely was not eligible for the 401(k).

 

[Bob the Swimmer]

I would call this insignificant under these facts, one person out of 350, especially if the account balance is small because it is only for a few years.