Employee enters before eligible in 2017

[DDB BN]

We were presented with a plan to takeover that was effective in 2016 and only employed the 2 owners.  The owners set up a Fidelity prototype and opened accounts and each owner made employee deferral contributions.  Eligibility is age 21 and 1 year entering the plan on 01/01 or 07/01 following.  Employee is hired in 09/2017 and enters the plan on his date of employment and starts making employee deferral contributions.  The employee should have entered 01/01/19 but made employee deferrals for 2017 and 2018 and then terminated  in Dec 2018.   It is a bit late for an 11g amendment so should an application be filed via VCP?  Can the employee's deferrals be refunded to him since he was not eligible?  Would be able to exclude employee as otherwise ineligible in ADP testing for 2017 and 2018 but there would be a TH issue, this is a deferral only plan.  They also never filed a 5500 for the years that the employee was in the plan.

Would the best course of action be to submit via VCP for the early entry, determine the TH amount for each year and prepare and submit the 5500 filing for 2017 and 2018 via the DFVCP?

 

[Bri]

Well, since it's too late for SCP (and way too late for an 11g), you might be stuck with VCP.

But then the issue is what the plan sponsor wants.  Refunding the deferrals gets you out of the top heavy issue because the guy is never supposed to be in the plan.  And it gets you out of the 5500 issue.  Can't imagine the plan sponsor would want to provide a THM AND any ADP test QNEC AND have to file late 5500s to a guy who left.

At that point you're then hoping the agent reviewing the submission doesn't think poorly of the fact pattern and not accept the submission to just Code-E the guy's refund!