Correcting Safe Harbor Plan under EPCRS

[HTO]

An employer maintains a safe harbor 401(k) plan that provides for a safe harbor matching contribution of 100% of elective deferrals that do not exceed 4% of compensation.  Since the plan's inception several years ago, the employer has inadvertently provided a match of 100% of elective deferrals up to only 3% of compensation.  So, each year, anyone deferring more than 3% has missed out on a matching contribution on 1% of compensation.

EPCRS doesn't specifically address this failure, but it seems that the logical way to correct is to make a contribution of the 1% match, plus earnings, to all affected participants for all affected years.  In describing the allowable correction methods, Appendix A of Rev. Proc. 2021-30 provides that, if in addition to a failure to make a contribution, a 401(k) plan also failed the ADP test or ACP test, the correction methods under Appendix A cannot be used until after correction of the ADP or ACP test failures.

In this case, although this is intended to be a safe harbor plan, the employer failed to make the required safe harbor contribution for some participants.  So, technically, the plan was not operated as a safe harbor plan in those years.  Does this mean that the employer is required to run the ADP/ACP tests for all of those years, correct any failures of ADP/ACP, and then correct the failure to make the matching contribution?  It seems to me that by simply making the corrective contribution of the missing 1% match (plus earnings) to all affected participants, the plan will be restored to safe harbor status for all years, making the ADP/ACP tests inapplicable, so it shouldn't be necessary to run the ADP/ACP tests for all affected years.

I would appreciate all input!

[Bri]

Failing to do the safe harbor you're supposed to doesn't "default you" into ADP testing.  It means you have a separate operational error to correct.   But you might be outside the SCP window at this point.

[HTO]

15 hours ago, Bri said:

Failing to do the safe harbor you're supposed to doesn't "default you" into ADP testing.  It means you have a separate operational error to correct.   But you might be outside the SCP window at this point.

Thank you for your response.  It sounds like you're agreeing with me that correcting the operational failure of not making the correct matching contribution should be all that needs to be done, or am I misinterpreting you?

Regarding SCP, in light of Section 305 of SECURE 2.0 and Notice 2023-43, wouldn't SCP be available as long as the IRS hasn't identified the failure and the failure was just recently discovered by the employer?