Correction of missed opportunity to defer corrected same year before ACP for Plan Year is known.

[ERISA-Bubs]

We are correcting a missed opportunity to defer for 2023.  We owe the employee a QNEC based on 50% of the ADP for the employee's group (NHCE) multiplied by the employee's compensation.

The problem is, we don't know the ADP for 2023 yet.  We'd like to correct immediately.  Is there another way to determine the missed deferral opportunity, or do we just wait until the Plan Year closes out to correct?  I know it's nearly the end of the year, but there has to be some alternative (e.g. a situation where we are trying to correct mid-year, rather than in December) other than waiting until the Plan Year's ADP is known -- right?  

[Paul I]

Assuming that you have verified that the was a Missed Deferral Opportunity (MDO) that must be corrected by making a 50% QNEC, then the correction is made in accordance with Rev. Proc. 2021-30 Appendix A .05(2) and Appendix B Section 2.02(1)(a)(ii)(B)(1), and you will need to have the ADP that passes for 2023 (determined without the use of exclusions for otherwise excludable employees) to calculate the correction.

There may be a correction other than the need to make a 50% QNEC assuming the employee is still active and depending upon the plan or other circumstances:

• Although unlikely given the question, does the plan use auto-enrollment? There may be not need for a correction but you have to provide a notice to the employee.
• Was the MDO found and deferrals began within 3 months from the employee's eligibility date?  There is no QNEC and you have to provide a notice to the employee.
• Was the MDO found and deferrals began after 3 months from the employee's eligibility date?  The QNEC is 25% and you have to provide a notice to the employee.

The guidance for corrections is fairly detailed and prescriptive once you can confirm the circumstances of the employee's MDO.

[ERISA-Bubs]

Paul -

In other words (and assuming the 50% QNEC is the right correction), I need to wait for the 2023 Plan Year to end and testing to be completed before I can make the correction -- correct?

 

[Paul I]

Correct - and determining the ADP for use in the correction will be done without disaggregating the otherwise excludagle employees.