Fixing ADP Test 2 yrs later

[TPApril]

I've quote below from the 401k plan fix it guide.

Plan failed ADP test 2 years ago. Seems to still be in a self correction program window of 3 years after the first year of correction.

Under SCP below, 1st option is to bring up the NHCE ADP. The 2nd method would be far cheaper to just determine the correction amount (w/earnings) and then contribute that equivalent amt to NHCE's.

However....all HCE's that are due a return of contributions have already terminated and taken full distributions.  I'm thinking they will need to be sent letters detailing the amount of their distributions/rollovers that were not considered eligible rollovers.

Preference would be to find an allowable correction that does not require a qnec to NHCE's.

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Self-Correction Program:

The EPCRS revenue procedure defines this as an operational error. Employer G determined the plan had established practices and procedures designed to keep it compliant and that the mistake wasn't significant. Correction could involve one of two methods:

• G could make QNECs to the NHCEs to raise the ADP to a percentage that would enable the plan to pass the test.
  • In this example, each NHCE would receive a QNEC equal to 1% of the employee’s compensation.
  • G must make these contributions for each eligible NHCE (if the contribution doesn't cause the 415 limit to be exceeded).
• Under the second method, the plan could use the one-to-one correction method.
  • Excess contribution amounts are determined.
  • The amount is assigned to HCEs and adjusted for earnings and this total amount is distributed to the HCEs
  • An amount equal to the distributed amount is contributed to the plan and allocated based on compensation among the eligible NHCEs.