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EPCRS safe harbor corrections for elective deferral errors


cathyw

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Can the various EPCRS corrections for elective deferral errors be applied separately to different participants?  A 401(k) plan sponsor recently discovered that although the definition of compensation for all purposes was total W-2 wages, operationally they were not applying the participants' deferral elections to bonus payments.  The employer non-elective contributions were based on total wages.  This has been going on for many years.  Incidentally, none of the participants has ever raised a question about the lack of deferral from their bonus.

The general correction is to make a QNEC in the amount of 50% of the missed deferral opportunity plus earnings.  The EPCRS safe harbor correction reduces that QNEC to 25% if corrected within 3 years from the date of the failure (the period for correction of significant errors).  Can the plan sponsor correct by providing a 25% QNEC for participants who have been participating for less than 3 years (since the failure as to them is less than 3 years) while providing a 50% QNEC for all longer-term participants? 

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Per Rev. Proc. 2021-30, pg 31/140, there is a consistency requirement based on like failures: 

"(3) Consistency requirement.  Generally, if more than one correction method is available to correct a type of failure for a plan year (or if there are alternative ways to apply a correction method), the correction method (or one of the alternative ways to apply the correction method) should be applied consistently in correcting all failures of that type for that plan year.  Similarly, Earnings adjustment methods generally should be applied consistently with respect to corrective contributions or allocations for a particular type of failure for a plan year.  In the case of a group submission, the consistency requirement applies on a plan-by-plan basis."

It's nice to be important, but it's more important to be nice...

CPFA, CPC, QPA, QKA, ERPA, APA

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