Top Paid Group Election

[Madison71]

Good morning -

401(k) Plan document was restated a couple of years ago when moving to a new provider.  This is the only plan sponsored by the employer.  Top paid group appears to have been inadvertently selected on the adoption agreement.  I say that because it was not selected on any of the prior plan documents, the sponsor states that there were supposed to be no changes on the restatement other than a change to the new provider's document and it was not included on the initial draft restatement.  In looking at the census data from prior years and this year, it would never have been advisable to select this option.  The plan parameters set-up on the system left off top paid group, so it passed testing with flying colors the past couple of years without this selection.  When going back to re-test with that option selected, it fails badly each year. 

The sponsor will amend the plan prior to the end of the plan year to eliminate this option.  However, any thoughts on correcting this operational error without having to correct past years based on this inadvertent selection?  I know VCP is an option although my understanding is the IRS will not approve if request to retroactively amend to remove top paid based on this reasoning. 

Thank you!

[PensionPro]

 

 

[Kevin C]

Have you tried using alternative exclusion provisions for determining the size of the top paid group under 1.414(Q)-1T Q&A 9 (b)(2)?  Sometimes increasing the size of the top paid group by one or two can make a big difference in the test results.