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Missed Opportunity To Defer -- Is There a De Minimis Exception?


HCE

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We accidentally treated part-time employees as excluded from the Plan.  Luckily, this problem is only recent -- we didn't have any part-timers until last year (which partially explains why we didn't know how to treat them).  Based on our calculations, to correct for these employees (there are only 4 of them), we are looking at small QNEC amounts -- at most $400, but as little as ~$100.  These employees don't currently have any accounts -- do we need to create accounts and contribute these small amounts to each of them?  Is there a rule where we don't have to make QNECs (and open new accounts) if the amount is below a certain threshold?  I know there are de minimis rules for overpayments and excess amounts, but I don't see anything for QNECs related to improperly excluded employees.

I appreciate any guidance.

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HCE, this IRS web page https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-eligible-employees-werent-given-the-opportunity-to-make-an-elective-deferral-election-excluding-eligible-employees summarizes the permissible corrections. The only time you don't have to create an account and allocate a make-up contribution is when the error is corrected within 3 months:

"If the period of failure is less than three months, no corrective QNEC for the missed deferral opportunity is required. The excluded employee must begin to participate and if the plan provided for auto-enrollment, the commencement of deferrals occurs within the three-month period beginning from the start of the failure and the issuance of the special notice occurs within the 45-day timeframe."

There are some other details and nuances, so make sure to have a professional involved in figuring out what is appropriate for your plan.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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