Lost Earnings on Missed Deferrals and SHMAT

[FT Retire]

Based on what I'm reading from the IRS website, missed deferral and SHMAT contributions over 2 years old have to do the following:

1. Deposit 50% of missed deferral + 100% of missed SHMAT contributions

2. Missed deferral is deposited into QNEC source, missed SHMAT is deposited into QMAC source

3. Lost earnings are based on the missed deposit going into QNEC and QMAC sources 

4. Prepare 5330

[FT Retire]

Actually correction on #3. Lost earnings are based on the originally missed deferral and SHMAT amounts

[C. B. Zeller]

You tend to see #1 and #2 when there was an improper exclusion from the plan, or when the participant's election was not implemented. #3 and #4 are usually associated with the situation where amounts were withheld from an employee's paycheck but not deposited to the plan trust. What actually happened in your case? Need more details to give you a better answer.

[CTCKOH]

Relating to this subject, we are currently making corrections due to certain pay types being excluded from our contributions. I am trying to find a letter or template to notify participants about this but have been unsuccessful. Does anyone have something they would share? Thanks! 

[Paul I]

Here are sample notices used to notify participants about a payroll issue.  Note that there are 2 notices - one for continuing actives and one for terminated employees.  The client was able to take advantage of the brief exclusion rule for the actives.

 

Sample notices - payroll issue.docx

[CTCKOH]

I have a follow-up question regarding corrective deferrals. Does anyone have evidence to show that within the 9 1/2 months time frame, termed employees would need to have a 50% QNEC? Up until this point, we were treating active and termed employees the same. Any information would be helpful, as we seem to be getting conflicting information from our consultants. Thanks! 

In looking at example 4 from this guideline, I would consider the 50% QNEC on termed employees would be accurate. Can anyone agree with this statement? 401(k) Plan Fix-It Guide - Eligible employees weren't given the opportunity to make an elective deferral election (excluding eligible employees) | Internal Revenue Service (irs.gov)

[Paul I]

You have the cite that describes the IRS position.  All of the safe harbor cures require that the participant has the opportunity to make themselves whole or otherwise mitigate the impact of being left out of the plan.  A terminated participant does not have that opportunity, so there is no other remedial action to giving them the 50% QNEC.

[BG5150]

Where does it say you have to put the corrective match into QMAC?

EPCRS mentions a "corrective employer nonelective contribution."  Notice it does not include the word "qualified."