Is there a missed deferral opportunity?

[PensionPro]

Division A employees are covered under Plan A.  Division B employees are covered under Plan B.  Employee E transfers from Division A to Division B on January 1, but continues to participate in Division A plan till May 31 before the error is discovered.  It only affected one out of about 25 employees.  The plans have the same provisions.

Does EPCRS provide any guidance on fixing this type of failure?  Our thoughts in order of preference are:

1.  Move the contributions for the five month period to the Division B plan from Division A plan. 

2.  Do a retroactive amendment stating employee E is excluded from the Division B plan and included in the Division A plan for January through May, or

3.  this does not make sense but - treat it as a missed deferral opportunity in Division B plan and impermissible contributions in the Division A plan?

Thank you.

[PensionPro]

Any thoughts at all?  Thanks.

[Paul I]

How is the compensation from which the deferrals were made being handled?  I would expect that the employee deferrals to the Division A plan were made from compensation paid (incorrectly) by Division A.  If this is the case and the payroll records are being corrected to show compensation was paid from Division B, then that is a reasonable argument for moving the deferrals that were made to the Division A plan to the Division B plan.  If in fact the plans are identical (including investments), the participant is kept whole.

A purist may feel compelled to consider this a collection of interconnected operational failures each with its own prescribed correction procedures, but I've know agents and investigators who would be okay with the outcome.

If the compensation reporting is not corrected, then the odds of getting some push back may go up a little bit.

[bp parv]

PensionPro: I don't think Rev. Proc. 2021-30 ("EPCRS") provides specific guidance on this situation, but one of the guiding principles of EPCRS is to place the participant and the plan(s) in the place they would have been absent the failure. Using that logic, the participant's deferrals (plus earnings/losses) for the period he/she was in the A plan (but should have been in the B plan) are transferred over to the B plan. In conjunction with the transfer of assets, I would then draft an SCP memorandum to file describing the failure, and the above correction. I would not propose the various retroactive amendments you are suggesting (although they are technically correct) simply because in my experience providing legal advice to TPAs and dealing with the IRS, they would very likely view this as a "no harm, no foul" situation.  Of course, this assumes that the plan documents are truly the "same" (i.e., identical) and that other than this operational failure, have been operated accordingly. 

[PensionPete]

I tend to agree with bp parv.  It if is truly a no harm, no foul type of situation, then transfer assets and document the correction via SCP.  I don't think DOL or IRS would give this too much attention especially if it is all properly documented and plan auditors (if subject to audit) are okay with it.
  

[BG5150]

If the provisions and investments are the same, just transfer them from one plan to another.  Make a note in the file and move on.

The W2 will be correct.

Just remember to decrease his contribs in Plan A and increase them in Plan B when you are doing your testing.