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Missed Deferral Opportunity - mid year correction or max out option


legort69

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A payroll system error caused a Participant deferral to be deducted at a lower amount and  as a result they did not get the opportunity to max out in 2021.

The problem continued until April 2022.

A 2021 QNEC for the MDO will be forthcoming.

However, for 2022,  do you give the participant the option to max out (maybe receive more match) or accept the QNEC.  If  they accept the 2022 QNEC then they cannot max out to the 402g limit for 2022 because the 402g limit takes into consideration the MDO.

Or would you fund a 2022 MDO QNEC and notify the payroll admin to reduce the 402g limit for 2022?

 

Thanks.

 

 

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I don't think there is anything that requires the sponsor to make the correction immediately. It might make sense to wait until the end of the year to determine the missed deferral opportunity, so that the participant's actual contributions can be taken into account to determine the MDO and the corresponding QNEC.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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Thank you CB Zeller. 

I have a follow up question to your response.

The deduction rates were corrected in April 2022 which puts us on the 45-day clock to fund a 25% QNEC for 2021.

The 45-day notice addresses the time period which should include 2022 up to the correction to lock in 25 QNEC.

Based on your suggestion, I am unsure how to respond to 2021 without flagging the continuation of the deduction error into 2022.

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16 hours ago, legort69 said:

The deduction rates were corrected in April 2022 which puts us on the 45-day clock to fund a 25% QNEC for 2021.

The notice has to be provided within 45 days. I don't see anything that says the QNEC has to be made within 45 days.

16 hours ago, legort69 said:

The 45-day notice addresses the time period which should include 2022 up to the correction to lock in 25 QNEC.

Rev Proc 2021-30 Appendix A .05(9)(c) (emphasis added)

Quote

(iii) A statement that corrective allocations have been made (or that corrective allocations will be made). Information relating to the date and the amount of corrective allocations need not be provided.

Your notice can contain language that says "If applicable, a corrective contribution pursuant to IRS Revenue Procedure 2021-30 will be made to your account" or something vague like that.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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