EPCRS Correction / Missed Match

[austin3515]

Plan has immediate eligiblity for 401k but a 1 year wait for the match.

As an example, Employee A was rehired after being gone for just a year and was eligible for the match prior to leaving. The client thought that they had re-satisfy the match eligibility so they did not provide them with the match as they should have.  They did provide them with the ability to make 401k contributions.

So clearly someone who made 401k contributions would need to receive the match because they were eligible.  But what about those who did not contribute?  The employees were told they needed to resatisfy the  1 year wait for the match, and it is therefore conceivable that they decided not to participate based on their understanding that they were not eligible for the match yet anyway.

Should we assume they had some contriubtions and provide them with a missed match correction? 

[ETA Consulting LLC]

I'm not sure about that one.  The plan's SPD typically explains to participants what happens upon rehire.  So, your question is what happens when someone verbally states a provision that is contradictory to the SPD (and plan document) which compels a participant not to contribute.  As unfortunate as it is, I don't think there is an issue.

Good Luck!

[PensionPro]

I see it as an operational failure when "the employees were told they needed to resatisfy the 1 year wait for the match" - improper exclusion from matching contributions contrary to the terms of the plan.  I would probably treat it as an improper exclusion from both deferrals and match as described in the OP.

[Belgarath]

Tough question. Presumably this is for NHC's? If so, hard to imagine that the IRS would argue with correcting as PP proposes above. I'm not certain it is REQUIRED. However, I, too, would probably recommend the make-up.

[austin3515]

PP, why would you treat as an improper exclusion from deferrals? There was no failure there.

The fact that they might have contributed had they known about the match is why they get the match as part of the correction.

[PensionPro]

Obviously, EPCRS does not  address the specific fact pattern described but provides that "the correction should be reasonable and appropriate for the failure.  Depending on the nature of the failure, there may be more than one reasonable and appropriate correction for the failure."

If the employees knew they were eligible for the match it would have affected their decision whether or not to participate.  The match would have been an incentive.  If you are going to make up the missed match there is an implicit admission that they would have or could have or may have made deferrals.  So I would make a QNEC equal to the missed deferral opportunity and a match based on the missed deferral.  The calculations depend on whether it is a safe harbor match or non-safe harbor match.

25 minutes ago, austin3515 said:

The fact that they might have contributed had they known about the match ...

This describes a missed deferral opportunity.  I don't think there is a way of satisfactorily demonstrating to the IRS that those employees would certainly not have elected to make deferrals.

[austin3515]

I just don;t think that matters is my argument.  There was no failure with respect to the payroll deduciton aspect of the arrangement - only the match.

But I am curious to hear what others would say on that topic.

[Luke Bailey]

This is a tough question. Maybe it's not an IRS issue? If the SPD properly states the rule, the problem is bad administration in misstating the rule to employees in other communications, e.g. at employee meetings or in a rehire interview or letter. So maybe a fiduciary breach because failed to administer the plan with reasonable competence. But as just about everyone else has noted, the operational error for IRS purposes would be not contributing the match for those who did defer, which must be corrected under EPCRS, and clear how you do that. I guess under the right facts and circumstances you could say that the employer's miscommunication of the actual plan provision was so widespread and persistent that it amounts to not administering the plan in accordance with its terms, so an IRS problem, and the remedy would be a QNEC for the missed deferrals, but, again as noted by others above, that does not seem clearly required.

[RatherBeGolfing]

16 hours ago, austin3515 said:

I just don;t think that matters is my argument.  There was no failure with respect to the payroll deduciton aspect of the arrangement - only the match.

But I am curious to hear what others would say on that topic.

I actually agree with your argument, but I'm not 100% that the IRS would.

There is no missed deferral opportunity because the participants were not improperly excluded from making deferrals.  They had just as much opportunity to defer as anyone else, they just weren't provided with the proper incentive to defer.  They were improperly excluded from the match, so a missed match correction is appropriate. 

I can see the IRS arguing that a participant was not afforded full opportunity because they were told they would not get a match.  If the correction isn't too expensive, I would consider correcting for the deferrals just to be safe.