New Plan, definition of comp <> comp used => correction

[TPApril]

Plan set up beginning of last year with a certain definition of compensation.

On payroll, a different definition of compensation was used.

To what extent can plan be amended retroactively to match what has been done in practice (ie self-correction)?

[BG5150]

I think with the new EPCRS, there is much more latitude with retroactive amendments.  Just be cognizant of who may be benefiting versus who may get a cutback of sorts.

[mattmc82]

7 hours ago, TPApril said:

Plan set up beginning of last year with a certain definition of compensation.

On payroll, a different definition of compensation was used.

To what extent can plan be amended retroactively to match what has been done in practice (ie self-correction)?

is there an employer match? was the definition used by payroll more or less liberal?

[EBECatty]

Even under the most recent EPCRS, an operational failure still can only be corrected by a retroactive amendment to conform to prior plan operations if it results in an increase of a benefit, right, or feature. See 4.05(2)(a)(i).

The update removed the requirement that the amendment provide an increase in BRF to all participants in the plan, which was the challenging part, but still requires an increase in BRF for those affected by the operational failure.

So if the definition of compensation actually used was less than the definition of compensation in the plan document, I still think you would need to correct with additional contributions or use VCP to amend retroactively. 

[TPApril]

Excellent points as always, I should have included that using the payroll version of comp vs the plan doc definition of comp is more beneficial to all employees.  There would be no additional contributions or corrrective withdrawals. If they go with plan doc def some money would have to be pulled from the match.

[Patricia Neal Jensen]

 See irs.gov/retirement-plans/401k-plan-fix-it guide-you-did-not-use-the-plans-definition-of-compensation-correctly-for-all-deferrals-and-allocations.