Buyback of vacation pay--subject to 401(k)? And New Comparability question.

Plan has no exclusions to compensation.

Employer did vacation day buyback, but did not withhold 401(k) deferrals.  Were they required to?

Also, they do a 4% profit sharing each year, and did not remit the PS for the buyback.

I am thinking they owe a 50% QNEC on the missed deferrals (plus earnings).  No match.

The missed PS may be ok.  The PS allocation is New Comparability, and if it passes testing they are ok.

Is it your opinion the Employer must do a Profit Sharing Resolution each year to memorialize the amounts everyone gets because it is New Comp and not a stated formula?

Yes, deferrals should have been taken from vacation buy back pay.

Maybe not a resolution but at least a memo from the employer to the plan administrator (yes, likely the same entity) that authorizes PS contributions "as attached" and then include your PS report. On audit, IRS will ask for it - at least from my experience.

What document provider do you use? We use Relius (PPD version). Under the definition of compensation is the following definition of excluded compensation:

(G) Excluded Compensation. Excluded Compensation means such Compensation as the Employer in its Adoption Agreement elects to exclude for purposes of this Section 1.11. Regardless of the definition of Compensation selected in the Adoption Agreement, the Plan Administrator may adopt a uniform policy for purposes of determining the amount of a Participant's Elective Deferrals of excluding non-cash Compensation. For purposes of this Section 1.11(G), Non-cash Compensation means tips, fringe benefits, and other items of Compensation not regularly paid in cash or cash equivalents, or for which the Employer does not or may not have the ability to withhold Elective Deferrals in cash for the purpose of transmitting the Elective Deferrals to the Plan pursuant to the Participant's Deferral Election. Additionally, the Employer may, on a uniform and nondiscriminatory basis, provide different deferral elections for different items of Compensation (e.g., a separate deferral election for bonuses), and may exclude for purposes of calculating elective deferrals one or more items of irregular pay (e.g., car allowance) in accordance with the Adoption Agreement. Unless otherwise specified, the Plan Administrator shall determine the amount of a Participant's Compensation (for purposes of allocations), by disregarding Excluded Compensation.

If your plan has this or similar language, would you be able to hang your hat on the "irregular pay" language?

We use Datair's doc, and they came back with pretty much the same analysis as you just shared.

Thanks.