Resititution on Prior Year Prevailing Wage Job

[401kSteve]

Small company has a 401k plan, 3% SHNE, pretty straightforward.  The company is in the construction business and often works on public projects.  The Department of Labor audited a job they had completed about 4 years ago and determined that the company had applied state-level prevailing wage parameters, but apparently there were federal monies included in the project, and as a result, the company should have used federal prevailing wage parameters.  The result is that the company will have to pay a few people who worked on that job some restitution, and it's required to be paid via W2 in the current year.  Most of these people no longer work for the company, though some were participants in the plan previously.  The company does have a 1-year break in service provision, but if those participants are excluded, the plan fails the 410b test in the current year.  So, the question is, how should the company should treat the SHNE contributions for these participants.  Amend the plan to include them in this year's SHNE?  Should they receive lost earnings going back to when the SHNE would have been paid had the earnings fallen in the year in which the original job occurred and thus SHNE would have been paid?  Any insight would be helpful.  Thank you!

[CuseFan]

Check the plan document (always) for any guidance. Looking at a pre-approved document hour of service definition, those hours for back pay are attributable to the computation period to which they relate - so the prior year(s) in question. Does that mean that the compensation attributable thereto should also be considered for the prior year(s)? I don't know for sure, but that might be a logical conclusion and then require those makeup contributions and earnings for anyone who would have been eligible for the SHNE for the respective year(s).

If compensation does not have to follow the hours back to earlier year(s) then you could treat it as current compensation for those employed. For former employees, could you then apply the post-severance compensation rules and plan provisions, which would likely exclude for all but the recently terminated? I don't see why not.

I don't know the answer, just providing two possible ways of looking at this from my perspective - heads or tails. There might be some labor law concerns here as well and if they had legal representation for their DOL job audit, they might want to take that engagement one step further to get a legal opinion on this.

As is often said in this forum, particularly with complex issues, free advice is very often worth what you paid for it.